10.7 Conclusion
This chapter has focused on risk reporting and portfolio risk tools applied to market risk. These tools help us understand the structure of the portfolio and how risks interact within the portfolio. All the examples are based on parametric estimation and delta-normal or linear approximations. Although many of the concepts (marginal contribution, for example) can also be applied when volatility is estimated by historical simulation or Monte Carlo, it is easiest to use these tools in a linear or delta-normal framework.
We now turn from our focus on market risk to considering credit risk. The fundamental idea remains—we care about the P&L distribution—but the tools and techniques for estimating the P&L distribution will often be different enough that we need to consider credit risk as a separate category.
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