1. © K. Cuthbertson and D. Nitzsche Figures for Chapter 22 MARKET RISK (Financial Engineering : Derivatives and Risk Management)

2. © K. Cuthbertson and D. Nitzsche Figure 22.1 : Standard normal distribution -1.65+1.65 Probability 5% of the area

3. © K. Cuthbertson and D. Nitzsche Figure 22.2 : Back-testing Daily $m profit/loss 0 2.5 5.0 -2.5 -5.0 = forecast VaR = actual profit/loss

4. © K. Cuthbertson and D. Nitzsche Figure 22.3 : Time varying portfolio weights Expected return pp A M A* M*  Efficient frontier at t 2 Efficient frontier at t 1

5. © K. Cuthbertson and D. Nitzsche Figure 22.4 : Position limits for market risk UK/US manager VaR limit $25m Equity manager VaR limit $30m Bond manager VaR limit $15m Dealer 1 in bonds : VaR limit $8m Dealer 2 in bonds : VaR limit $20m Dealer 3 in securities : VaR limit $20m Dealer 4 in securities : VaR limit $20m