Estimating Portfolio Market Risk Based on Value at Risk (VaR)

Subject Areas : Futurology

M.  Khalili Araghi ¹ (نویسنده مسئول)
S.  Hashemi ² (ندارد)

Received: 2007-04-23 Accepted : 2007-10-08 Published : 2008-06-21

Keywords: risk management, Total Risk Management, Market risk, portfolio, Investment Company, Value at Risk (VaR),

Abstract :

Considerating the day by day ever changing environment and economic systems factors, every day, differentrisks influence on finance structure of financial institutions. Incremental trend of globalization phenomenonin financial markets, internationalization of economy, financial innovations and create new financialinstruments, as well as the vast and fast derivative products development, understanding of the effect of themarket circumstances in firm’s situation is powerful more than ever.Therefore, market risk is the important point of view for market players. Market risk is kind of risk thatarises in market. It includes several kinds of risk such as: product and stock price risk, bull-bear market risk,exchange rate risk and etc.In this paper, we want to answer this question that “how market risk of portfolio can estimate whit value atrisk mode”. this research based on special manner of data gathering called correlation research. VaR is thestatistical measure of the risk that estimates the maximum loss that may be experienced on a portfolio with agiven level of confidence. In this article, at first, we considered the importance of risk management, and thenexplain the role of market risk in financial market of our country. In continue, we will presentation theefficient instrument for calculate portfolio market risk management. Finally, we will calculate amount ofportfolio VaR for an investment company as a case study. Research outcomes indicate that sevenpercentages from capital or value of portfolio tantamount to 11 millions Rials, exposure at market risk.Whereas this measure specify amount of company’s value at risk for financial managers, operate better thanpast models.