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Advanced Risk Management: Value at Risk and Stress Testing

A rigorous, formula-first treatment of Value at Risk and stress testing built for quant researcher aspirants, prop trading applicants, and systematic traders who already understand volatility and returns. Covers the three core VaR methodologies (historical simulation, parametric, and Monte Carlo), why VaR breaks down at the tails and how Expected Shortfall fixes it, how to backtest a VaR model properly, and how to build a stress testing framework using real Indian market crises like the 2008 GFC, the 2013 taper tantrum, and the 2020 COVID crash, applied to Nifty, Bank Nifty, and individual NSE stocks.

MODULES

7

DURATION

~5.8 hrs

TRACK

Quantitative Finance

Access Level

LEARNER

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Full Text Playbooks

Actionable Exercises

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Curriculum Breakdown

Chapter 1: Foundations of Risk Measurement

3 Lessons

Why Traditional Risk Metrics Fall Short12 min read

Understanding Value at Risk: Definition, Parameters, and Interpretation13 min read

Returns, Volatility, and Distributions: The Building Blocks of Risk Modeling13 min read

Chapter 2: Calculating VaR: Core Methodologies

4 Lessons

Historical Simulation Method14 min read

Parametric (Variance-Covariance) Method14 min read

Monte Carlo Simulation for VaR15 min read

Comparing Methods: Strengths, Weaknesses, and When to Use Each12 min read

Chapter 3: Beyond VaR: Coherent Risk Measures and Backtesting

3 Lessons

The Problem with VaR: Tail Risk and Non-Subadditivity13 min read

Expected Shortfall (Conditional VaR): Theory and Calculation14 min read

Backtesting VaR Models: Kupiec Test and Exception Analysis13 min read

Chapter 4: Stress Testing and Scenario Analysis

4 Lessons

Principles of Stress Testing: Beyond Statistical Models12 min read

Historical Scenario Analysis: 2008 GFC, the 2013 Taper Tantrum, and the 2020 COVID Crash in Indian Markets14 min read

Hypothetical Scenarios and Sensitivity Analysis12 min read

Building a Stress Testing Framework for a Trading Book14 min read

Chapter 5: Portfolio Risk Decomposition (Marginal, Component, and Incremental VaR)

4 Lessons

Why Aggregate VaR Isn't Enough: The Case for Decomposition12 min read

Marginal VaR: The Risk Contribution of the Next Rupee14 min read

Component VaR: Splitting Total Risk Across Positions14 min read

Incremental VaR: Sizing a New Trade Before You Put It On13 min read

Chapter 6: Liquidity Risk and Liquidity-Adjusted VaR

4 Lessons

Why Market Risk Isn't the Whole Story: Introducing Liquidity Risk12 min read

The Bid-Ask Spread and Market Impact Cost13 min read

Liquidity-Adjusted VaR (L-VaR): Building Exit Cost Into the Model14 min read

Liquidity Under Stress: When Spreads Widen and Depth Disappears13 min read

Chapter 7: Extreme Value Theory for Tail Risk

4 Lessons

Why Even Fat-Tailed Normal Models Aren't Enough12 min read

The Generalized Pareto Distribution and the Peaks-Over-Threshold Method15 min read

Estimating Tail Risk with EVT: The Hill Estimator14 min read

EVT-Based VaR and Expected Shortfall14 min read