Integrated Risk Measurement for Portfolio of Various Assets at Continuous Time Horizons

Different financial products usually have very different risk profiles. In the finan-cial Industry, risk measures based on VaR for financial products are either dominant market VaR or credit VaR or Add VaR, which is obtained by evaluating market VaR and credit VaR separately and then add them together. The regulatory capi-tal required by regulators is then computed according to the VaR, which will either underestimate or overestimate the products risks. In order to reasonably measure market risk and credit risk together, in this study we present a new framework, with which we can measure integrated market risk and credit risk for portfolios consisting of various assets through continuous time horizons. Using Monte Carlo simulation, we employ this framework to port-folios consisting of bonds, stocks and bonds plus stocks with normal distributed asset return assumptions. We find that term structures of market VaR, credit VaR, integrated VaR and Add VaR are different for bond portfolio, stock portfolio and mixed portfolio, with the largest integrated VaR values for stock portfolio, the small