A use of Black-Scholes model in market risk
by Panos Xidonas; Christos E. Kountzakis; Christis Hassapis; Christos Staikouras
International Journal of Financial Engineering and Risk Management (IJFERM), Vol. 2, No. 3, 2016

Abstract: The aim of this paper is to use the Black-Scholes model for market risk by using the estimated drift and volatility of a stock-return for a relatively small time-horizon, in case where the historical returns are better-fitted to a normal distribution. In this case, we may use the infinitesimal operator of the complete market formulated by the stock and the numeraire by taking the interest rate also constant and equal to the mean reference rate for the turning of theoretical and historical VaR to an economic capital functional.

Online publication date: Fri, 17-Mar-2017

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