1-Day VaR - Value at Risk Calculation
  • 1-Day VaR - Value at Risk Calculation
Originally published: 14/04/2020 12:50
Last version published: 14/04/2020 12:56
Publication number: ELQ-65950-2
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1-Day VaR - Value at Risk Calculation

1-Day VaR Calculation using Historical Method - in Microsoft Excel.

Description
Value at Risk (VaR) is a financial metric that estimates the risk of an investment. More specifically, VaR is a statistical technique used to measure the amount of potential loss that could happen in an investment portfolio over a specified period of time.

Advantages of Value at Risk (VaR):
1. Easy to understand
2. Applicability
3. Universal

Limitations of Value at Risk:
1. Large portfolios could be affected
2. Difference in methods resulte in littel different values

Key Elements of Value at Risk:
1- Specified amount of loss in value or percentage
2- Time period over which the risk is assessed
3- Confidence interval

This template helps understand and calculate potential loss incurred in one day using historical VaR method with different levels of confidence include 90%, 95% and 99%.

First step; Calculate returns for all security in the portfolio
then find daily profit and loss based on current security value
then add all the profit and loss from each secuity
last step find the 1st,5th or10th percentile value could be lost in one day

This template is easy to modify based on your portfolio selection and easy to understand by anyone who manage a portfolio

THIS FILE DOESN'T INCLUDE MACROS

This Best Practice includes
1 Excel File

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