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Analysis of the 260-day Value at Risk (VAR) of a portfolio of four shares - Assignment Example

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Author : mmurazik


Introduction This report aims to present the findings of an analysis of the 260-day Value at Risk (VAR) of a portfolio of four shares. The purpose of this analysis is to measure financial risk as well as to quantify and manage the risk of a portfolio. A short discussion of Value at Risk in general will be provided, followed by a review of the key questions motivating this analysis…

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Analysis of the 260-day Value at Risk (VAR) of a portfolio of four shares

It is the level of return comprising of a given probability (usually, 5, 2.3, or 1 percent) of experiencing a return of less than that level. Value-at-Risk was first used in the late 1980’s by major financial firms to measure the risk of their trading portfolios. Since then, Value-at-Risk is widely used quantitative tool to measure market risk. According to Hull (2005), “VaR answers the question: how much can one lose with X% probability over a pre-set horizon”. More precisely VaR is an amount (say V dollars), where the probability of losing more than V dollars is over some future time interval, T days. Value-at-Risk has become widely used by corporate treasurers, fund managers, financial institutions, brokerage firms and investment funds to gauge their financial risk. In addition, bank regulators use Value-at-Risk in determining how much capital a bank should possess to reflect the market risks it is bearing (ibid). ...
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