VaR is a method of assessing risk that uses standard statistical tehniques routinely used in other tehnical fields. Based on firm scientific foundations, VaR provides users with a summary measure of market risk.

Value at Risk

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Contents:

1. Introtuction to Value at Risk pag 2

2. Methodologies for Measuring Risk pag 4

3. Conclusions pag 15

References pag 16

1. Introduction to Value at Risk:

Risk advise be defined as the volatility of unexpected outcomes, generally the value of assets or liabilities of interest. Firms atomic number 18 exposed to various types of happens, which can be broadly sort out into parentage and nonbusiness risks.

Business risks are thouse which the corporation willingly assumes to create a competitive advantage and add value for shareholders. Business, or operating, risk pertains to the product market in which a firm operates and includes technological innovations, product design, and marketing. Operating leverage, involving the degree of indomitable versus variable costs, is also lergely a choise variable. Judicious exposure tobusiness risk is a also core competency of all business activity. Business activity also include exposure to macroeconomic risks, which conduct from economic cycles, or fluctuations in incomes in fiscal policies.

Other risks, over which firms have no control, can be grouped in to nonbusiness risks. These include strategic risks which result from fundamental shifts in the economy or political enviroment.

Finally, fiscal risks can be difined as thouse which strike to posible losses in financial markets, such as losses due to interest rate movements or defaults on financial obligations. Exposure to financial risks can be optimized carefully so that firms can concetrate on what they do best-manage exposure to business risks.

VaR traces its roots to the infamous financial disasters of the early nineties that engulfed Orange Country, Barings, Metallgedellschaft, Daiwa, and so many others. The common lesson of these disasters is that billions of dollars can be lost because of poor supervision and management of financial risks. Spurred into...

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