2. I am “X” percent certain there will not be a loss of more than “V “in the next “N” days
X is the confidence level
V is the VAR of the portfolio
N is the time horizon

3. A statistical technique used to measure and quantify the level of financial risk
within a firm or investment portfolio over a specific time frame. Value at risk is
used by risk managers in order to measure and control the level of risk which the
firm undertakes.
Value at Risk is measured in three variables: the amount of potential loss, the
probability of that amount of loss, and the time frame. For example, a financial
firm may determine that it has a 5% one month value at risk of $100 million. This
means that there is a 5% chance that the firm could lose more than $100 million
in any given month. Therefore, a $100 million loss should be expected to occur
once every 20 months.

5.  ANALYTICAL METHOD
 HISTORICAL METHOD
 MONTE CARLO SIMULATION METHOD

6. ANALYTICAL METHOD
 Variance- covariance method
 Knowledge of input values
 Under the assumptions of normal distribution

7. HISTORICAL METHOD
Estimates the distribution of the portfolio
performance by collecting data on the past
performance of the portfolio and using it to
estimate the future probability distribution
Produces a VAR that is consistent with the
VAR of the chosen historical period

8. MONTE CARLO SIMULATION METHOD
Named for the city of “MONTE CARLO” which is
known for casino’s.
Simulation is a procedure in which random numbers
are generated and the outcomes associated with
these random drawings are then analyzed to
determine the likely results and the associated risk.

9. CLEAR YOUR DOUBTS….

10. THANK YOU!!!!
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