Boudoukh Interpolation

[Johnny Firpo]

Hi David,
actually I don't get the interpolation in Boudoukh (see your Study Notes page 5 and 6). ...

1. How does the "halfway rule" work and why does -2.40% represent the 4.5 percebtile and not the 5% percentile? And how can we end in concluding that -2.35% is the 5% VaR???

2. Why does the 5% VaR does lie between -2.70 and -2.60 and not between -2.80 and -2,70???

Thanks in advance!

 

[Alex_1]

So can we say that for the HS approach the 5% VaR is -2.35% and for the Hybrid approach the 5% VaR is somewhere at -2.65%?

 

[IRENA BLAZINCIC]

Yes.

Linear interpolation for Hybrid approach gives -2,63%

Var 95% is calculated after solving system of two linar equations (Y=aX+b) where
Y1=-2,60%, X1=5,11%
Y2=-2,70%; X2=4,79%

a=0,313
b=-0,042

so Var 95%:
Y (X=5%) = 0,313 X - 0,042 = -2,63%

 

[Alex_1]

Great explanation, thanks a lot!

 

[Johnny Firpo]

Thx irenab!