This master course on Risk Management takes a deeper look at calculating Value at Risk and the three methods used for calculating VaR.

We start with a review of Value at Risk (VaR) calculation methods including VaR by variance-covariance, VaR by historical simulation and VaR by Monte Carlo simulation, build a simple portfolio and calculate VaR for the first of the above two methods. We close with a review of applying a Value at Risk (VaR) approach to risk management within the petrochemical industry as well as a review of known issues in Value at Risk (VaR) calculations and results. The objective here is to provide a basic introduction to a common tool that gets used frequently in the risk world and then do a non-traditional, market risk oriented application to show how the same tool could be extended to address other interesting questions.

Master Class: Calculating Value at Risk: Introduction
Master Class: Calculating Value at Risk (VaR): VaR Methods
Master Class: Calculating Value at Risk (VaR): First Steps
Master Class: Calculating Value at Risk (VaR): Final steps

VaR Applications

We use value at risk (VaR) as a tool to forecast and predict the margin shortfall problem within the oil, gas and petrochemical industry.  While oil prices have always been volatile, recent volatility (2008 and now 2011) have left budgets, CFO’s and traders in a fix especially wrt a framework that can be used to communicate, manage and reset expectations with the senior management team and board of directors.
Master Class: Risk for the Oil and Petrochemical Industry

VaR Issues

Sometimes users confused the mathematical nature of a tool with objectivity and robustness. The VaR caveats posts points out some of the more serious issues behind Value at Risk that need to be considered when interpreting and communicating VaR results to Board members and senior managers.

Value at Risk: Caveats, Qualifications, Issues

To view a more detailed course description, please click on the link -  Calculating Value at Risk (VaR) – Detailed Course Description. Please also see our new self study, self paced video based course on setting limits that walk through the process of setting, reviewing and linking limits including VaR, Stop Loss, PSR, Margin and Counterparty limits based on market volatilities.

“How do you determine the Value at Risk (VaR) measure for derivative products such as options and futures? We suggest one way of determining this metric using a Monte Carlo simulation-based technique. Check out our methodology here.”

If you would like to buy the “Calculating Value at Risk (VaR) course as a pdf file or its EXCEL file, please see the Middle Office and VaR section at our online finance course store. The online finance course store includes easy-to-read-and-work-with downloadable pdf files, excel templates and ready-to-work with models that are shared to illustrate usage and speed up learning for advanced financial modeling, forecasting and simulation topics including interest rate forecasting and simulation, value at risk analysis, credit analysis and processes, Internal Capital Adequacy Assessment Process (ICAAP), asset liability management and other related middle office and risk and computational finance topics.