Different theoretical and numerical methods for calculating the fair-value of a variance swap give rise to systematic biases that are most pronounced during volatile periods. For instance, differences of 10-20 percentage points would have been observed on fair-value index variance swap rates...

Most banks employ historical simulation for Value-at-Risk (VaR) calculations, where VaR is computed from a lower quantile of a forecast distribution for the portfolio's profit and loss (P\&L) that is constructed from a single, multivariate historical sample on the portfolio's risk factors. The...