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Value at Risk Intro

Value at Risk Intro

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Published by Juhani Huopainen

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Categories:Types, Business/Law
Published by: Juhani Huopainen on Sep 07, 2011
Copyright:Attribution Non-commercial

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04/14/2012

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1
Value-at-Risk IntroMarch 2007
 
Juhani Huopainen
 
 © 2007-2011 Juhani Huopainen (huopainen on gmail)
 
2
VALUE-AT-RISK
1. What is VaR
 –
 
and what it’s not
 2. VaR-methods3. VaR-model: creation4. VaR-metrics and their use5. Advanced models6. Stress tests and scenario analysis
 
7. Future challenges
Schedule
 © 2007-2011 Juhani Huopainen (huopainen on gmail)
 
3
1. What is VaR
 –
 
and what it’s not
 
Assume the trading position iscomposed of one long Q2 forwardcontractPrice of the contract is 27 euros,underlying value 58.968 euros
 –
is thisthe total amount at risk?Is the risk the collateral requirement ofthe position?You have a sell stop-order in themarkets at 26 euros. Is the risk 27-26 =2.184 euros?What if you are addionally short a Q3forward?
 –
is the total risk 123.883euros? Or zero?
Defining The Risk
 © 2007-2011 Juhani Huopainen (huopainen on gmail)
ENOQ2-07, 1.3.2005 - 26.1.2007
20.0025.0030.0035.0040.0045.0050.0055.0060.001 29 57 85 113 141 169 197 225 253 281 309 337 365 393 421 449 477 505 533 561 589 617 645 673 701 729 757 785 813 841 869 897 925 953 981
Risk
is not 
equal to
position size
margin/collateral requirement
stop-loss
sum of individual risks

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