A structure for general and specific market risk (Q1424643)

A benchmark approach to the market risk analysis is discussed. In this framework the usual growth ratios are normalized by the growth ratios of some broadly based index (such as S \& P or MSCI) and then log-returns of such benchmarked data are considered. A model with stochastic volatility is considered in which the benchmarked log-returns have a generalized hyperbolic density (a class of PDF which includes Student-t, and normal-inverse Gaussian PDFs). VaR analysis in this model is discussed. The model was applied to US, Australian, German, Japanese and UK stock markets.