How to calculate the Value-at-risk of a portfolio?

How to calculate the Value-at-risk of a portfolio?

How to calculate the Value-at-risk of a portfolio?

Historical method of calculation of the value-at-risk Example: To determine the evolution of the wallet (daily gains or losses) over the last 1500 days, we will rank the results in ascending order. The 15th (1500*(100%-99%)) value in the ranking will correspond to the value-at-risk 99% at 1 day.

What are the benefits of Var?

The use of VaR is no longer limited to financial instruments: it can be used as a risk management tool in all areas (estimating the risk run by a company related to influenza A, for example).

What are the uses of Var?

This VaR can be used: For the calculation of economic capital; For market risk monitoring, both as risk reporting and as a decision support tool (to allocate capital to a “desk” for example); For credit risk: see Credit VaR

What are the indicators of Var?

The IVAR (for Incremental VaR) is also an indicator that complements the VaR because it assesses the impact in terms of VaR of adding an element to the portfolio. Finally, the stress tests make it possible to complete the VaR because they assess the impact of certain extreme scenarios (existing or simulated) on the portfolios.

What is the analytical method for calculating Var?

Analytical method for calculating VAR. The analytical method is based on statistical calculations to determine the law of distribution of gains and losses. To do this, we will establish hypotheses for the variation of the various risk factors and evaluate the portfolio according to the various scenarios.