Question

In: Finance

.p2(2) VaR (Value at Risk) is defined as ///////////////////////////////////// In words: The maximum loss over a...

.p2(2)

VaR (Value at Risk) is defined as

/////////////////////////////////////

In words: The maximum loss over a predetermined period with a confidence interval.

formula : VaR=position * z * sigma

where position : the value of your portfolio

z : depends on the confidence interval

=norm.inv(0.01,0,1)=-2.326347874 # for 99%

=norm.inv(0.05,0,1)=-1.644853627 # for 95%

sigma : the period standard deviation

Assume that we have 100 shares of IBM stocks, 200 shares of

Wal-Mart and 300 shares of Citi Group (ticker is C). What is the

VaR of our portfolio within next 10 days with a confidence

interval of 99%?

Expert Solution

Answer )

Data of Said shares IBM ,WAL-MArt and Citi group for return is takenfrom yahoo finance, fromlast ten days of trading till today (7th May 2018)

Price of the shares are given below used in VAR calculation

	Citigroup Inc.(c)	WTM	IBM
7-May-18	68.54	85.77	143.67
4-May-18	67.94	87.53	143.91
3-May-18	67.94	86.23	141.99
2-May-18	67.99	86.34	142.45
1-May-18	68.25	87.41	145
30-Apr-18	68.27	88.46	144.96
27-Apr-18	68.99	87.29	146.48
26-Apr-18	69.18	87.94	146.72
25-Apr-18	69.36	87.17	145.94
24-Apr-18	69.12	86.53	145.56

Calculation :

Porfolio Detail at Start Data( as on 24 Apr-18)
	$-value	weights	No of share	Price OF share
IBM	14,556	0.276741	100	145.56
WALMart	17,306	0.329024	200	86.53
Citi group	20,736	0.394236	300	69.12

Level of Certainty			0.99
Number of observations			9

Date	Prices			Returns			Portfolio	Ascend.	No of	VaR	VaR
(yyymmdd)	Asset 1	Asset 2	Asset 3	Asset 1	Asset 2	Asset 3	change	ordered	obs.	historic

24-Apr-18	145.56	86.53	69.12
25-Apr-18	145.94	87.17	69.36	0.002607206	0.00737	0.00347	0.004513	-0.21765	1	-11447.9
26-Apr-18	146.72	87.94	69.18	0.00533043	0.00879	-0.0026	0.003344	-0.08345	2	-4389.11
27-Apr-18	146.48	87.29	68.99	-0.001637108	-0.0074	-0.0028	-0.00398	-0.04223	3	-2221.3
30-Apr-18	144.96	88.46	68.27	-0.010431058	0.01331	-0.0105	-0.00264	-0.04213	4	-2216.17
1-May-18	145	87.41	68.25	0.0002759	-0.0119	-0.0003	-0.00397	-0.04075	5	-2143.51
2-May-18	142.45	86.34	67.99	-0.017742681	-0.0123	-0.0038	-0.01047	-0.04038	6	-2124.09
3-May-18	141.99	86.23	67.94	-0.003234428	-0.0013	-0.0007	-0.0016	-0.03986	7	-2096.36
4-May-18	143.91	87.53	67.94	0.013431472	0.01496	0	0.00864	-0.03757	8	-1975.97
7-May-18	143.67	85.77	68.54	-0.001669101	-0.0203	0.00879	-0.00368	-0.03497	9	-1839.29

Assets	Value	Std. Dev.	VaR	Abs. VaR
	of asset

1	14,556	0.8918%	302	302
2	17,306	1.2687%	511	511
3	20,736	0.5256%	254	254

FInally Summary

Level of Certain. =		0.99
Normal dist. Value		2.326

Worse Case VaR =		1,066
Div. VaR =		697

jeff jeffy answered 2 years ago

VAR Measures the potential maximum 1-day loss on the value of positions of an MNC that...

VAR Measures the potential maximum 1-day loss on the value of positions of an MNC that is exposed to exchange rate movements. Basically, it goes to compute how much is the maximum possible loss of MNC going to be if exchange rates move against the firm position. In Calculating the Value at Risk (VAR), what is the implication of underestimating volatility of exchange rates? ( Please respond in a complete and explanatory way ) Answer should have 100 words minimum

Illustrate the difference between the value-at-risk (VaR) and conditional value-at-risk (C-VaR) measures

Describe some advantages and disadvantages of Value at Risk (VaR) as a risk measure relative to...

Describe some advantages and disadvantages of Value at Risk (VaR) as a risk measure relative to other risk measures

1. Compare paramatric, historical, and monte carlo simulation methods in identifying VaR (value at risk) 2....

1. Compare paramatric, historical, and monte carlo simulation methods in identifying VaR (value at risk) 2. What are the pros and cons of those? 3. Identify some weights on historical losses that you think should make more sense in current trading war environment.

If a Normal distribution is assumed for the possible future outcomes, the Value at Risk (VaR)...

If a Normal distribution is assumed for the possible future outcomes, the Value at Risk (VaR) is fairly straightforward and simple to calculate if the mean and standard deviation are known. True False A fairly accurate estimate of the Value at Risk (VaR) can be determined by using the generally accepted assumption that daily returns of the stock market as measured by the S&P 500 Index are consistent with a Normal distribution. True False The Value at Risk (VaR) tells...

Discuss the main sources of risk in commercial banking, and critically discuss the Value-at-Risk (VaR) approach...

Discuss the main sources of risk in commercial banking, and critically discuss the Value-at-Risk (VaR) approach to risk measurement.

Value at Risk (VaR) is an attempt to provide a single number for senor management summarizing...

Value at Risk (VaR) is an attempt to provide a single number for senor management summarizing the total risk in a portfolio of financial assets. It has become widely used by corporate treasurers and fund managers as well as by financial institutions. A company currently has $5 million invested in commodity X and $3 million invested in commodity Y. The daily sigma of commodity X is 1 percent, the daily sigma of commodity Y is 1.5 percent, and the coefficient...

Company A asked you to estimate the Value at Risk (VAR) for receivables from Vietnam and...

Company A asked you to estimate the Value at Risk (VAR) for receivables from Vietnam and Singapore. Please describe in detail to Mr. AA what VAR measures and detail the process you would undertake to estimate VAR for Siam Cement. Please also include the potential drawbacks of the VAR method and what steps you would undertake to mitigate these drawbacks.

What are VaR (value at risk) models? How important are they? Do you think Mandelbrot or...

What are VaR (value at risk) models? How important are they? Do you think Mandelbrot or Malkiel would recommend them? Would you use them? How?

Calculate the 5-day 90% Value at Risk (VaR) for the stock whose historical price information is...

Calculate the 5-day 90% Value at Risk (VaR) for the stock whose historical price information is given below by using historical simulation approach. Week Stock Price 0 49.00 1 48.12 2 47.37 3 50.25 4 51.75 5 53.12 6 53.00 7 51.87 8 51.38 9 53.00 10 49.88