Financial Risk Management Essay example
Finance & Accounting
Pages 11 (2761 words)
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Financial Risk Management
1. Introduction:
Many financial and non-financial organizations currently report the significance of value-at-risk (VaR), a risk that calculates for possible losses.


At the business level, managers use VaR as a standard summery of market risk exposure. A benefit of the VaR which is a, the great value theory, is that it may be computed without full information of the return allocation. Semi or fully non-parametric estimation processes are obtainable for downside risk estimation. Additionally, at an adequately low confidence level the VaR calculate explicitly concentrates regulators and risk manager’s attention on uncommon losses, than on potential catastrophic great losses. The general use of VaR based risk management is that, it has become increasingly significant in the study of the belongings the option market, and the stock market of these constraints. For instance, organizations with a VaR constraint may be willing to purchase out of the money put choices on the market portfolio so as to limit their downside risk. If multiple organizations follow the similar risk management plan, then this will clearly lift the equilibrium costs of these options. In addition the form of the returns of stock distribution in equilibrium will be influenced by the management efforts of collective risk. As an outcome, it is possible that the allocation of stock returns will become more heavy-tailed. ...
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