Value at Risk

In: Business and Management

Submitted By nabillah
Words 3437
Pages 14
Undergraduate Research Opportunity
Programme in Science

Value at Risk
Dai Bo

Supervisor: Dr. Arie Harel

Department of Mathematics
National University of Singapore
Academic year (2000/2001)



Value at Risk (VaR) is one of the most popular tools used to estimate exposure to market risks, and it measures the worst expected loss at a given confidence level. In this report, we explain the concept of VaR, and then describe in detail some methods of VaR computation. We then discuss some VaR tools that are particularly useful for risk management, including marginal VaR, incremental VaR and component VaR.
The next consideration is the effect of time varying risk, which can be estimated by a moving average model or a GARCH process. Finally, we introduce some back testing methods to validate the use of VaR model.
All description, definitions, examples, results, proofs, tables, and remarks in this report are taken from the 2nd edition of the book of Philppe Jorion “Value at Risk” (Jorion 2001), unless otherwise indicated.


Table of contents
Cover page




Table of contents


Chapter 1 Motivation and Introduction


1.1 Motivation


1.2 Introduction


1.3 Overview of the report


Chapter 2 VaR computation


2.1 Definition of VaR


2.2 Measuring returns


2.3 Computation of VaR


2.4 VaR measurement over different parameters


2.5 Choice of parameters


Chapter 3 Portfolio VaR


3.1 Portfolio VaR for multiple assets


3.2 VaR reduction methods


3.3 VaR tools


Chapter 4 Modeling Time-varying Risk


4.1 The existence of time-varying risk


4.2 Moving average


4.3 GARCH estimation


4.4 RiskMetrics approach


Chapter 5 Back Testing VaR Models


5.1 Model back testing with…...

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