Historical risk assessment of a balanced portfolio using Value-at-Risk [electronic resource].
Calculation of the Value at Risk (VaR) measure, of a portfolio, can be done using Monte
Carlo simulations of that portfolio’s potential losses over a specified period of time.
Regulators, such as the US Securities and Exchange Commission, and Exchanges, such
as the New York Stock Exchange, establish regulatory capital requirements for firms.
These regulations set the amount of capital that firms are required to have on hand to
safeguard against market loses that can occur. VaR gives us this specific monetary value
set by Regulators and Exchanges. The specific amount of capital on hand must satisfy
that, for a given confidence level, a portfolio’s loses over a certain period of time, will
likely be no greater than the capital required a firm must have on hand.
The scenario used will be one of a Risk Manager position in which this manager
inherited a portfolio that was set up for a client beginning in April 1992. The portfolio
will have to meet certain parameters. The initial portfolio is worth $61,543,328.00. The
risk manager will be responsible for the calculation of the Value at Risk measure, at five
percent, with a confidence level of 95% and 20 days out from each of the 24 business
quarters, over a six year period, starting in 1992 and ending in 1996.
School:Worcester Polytechnic Institute
School Location:USA - Massachusetts
Source Type:Master's Thesis
Keywords:portfolio management risk assessment monte carlo method
Date of Publication: