Estimating Market Risk Measures (FRM Part 2 2025 – Book 1 – Chapter 1)
Learn how to estimate market risk measures for the FRM Part 2 exam with Prof. James Forjan, PhD, CFA. We cover Value at Risk (VaR) via historical simulation and parametric approaches using normal and lognormal assumptions, Expected Shortfall (ES or CVaR), coherent risk measures such as subadditivity, homogeneity, monotonicity, and translation invariance, quantiles and QQ plots, and standard errors with confidence intervals for risk estimators, plus worked examples and exam tips.
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After completing this reading you should be able to:
Estimate VaR using a historical simulation approach.
Estimate VaR using a parametric approach for both normal and lognormal
return distributions.
Estimate the expected shortfall given P/L or return data.
Define coherent risk measures.
Estimate risk measures by estimating quantiles.
Evaluate estimators of risk measures by estimating their standard errors.
Interpret QQ plots to identify the characteristics of a distribution.
0:00 Introduction
0:16 Learning Objectives
0:58 Estimating VaR using a Historical Simulation Approach
7:51 Estimating Parametric VaR
14:38 Estimating the Expected Shortfall Given P/L or Return Data
18:02 Coherent Risk Measures
20:47 Estimating Risk Measures by Estimating Quantiles
23:39 Evaluating Estimators of Risk Measures by Estimating their Standard Errors
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