- Everything assumed in the (VaR) calculations/process is true
- All approximations made are accurate
- The future follows the past and whatever risk you are analyzing only exists for the specified (certain) period

If you are reasonably comfortable with all of the above, then the one number to answer your question is Value at Risk: A worst case loss with limits on time period and probability.

This course takes an in-depth look at the calculation methodologies of the Value at Risk measure. We review Value at Risk (VaR) calculation methods in particular the Variance-covariance approach and the Historical simulation approach. We build a simple portfolio comprising of Euro, Australian dollar, Yen, GBP, Brent, WTI, Gold and Natural Gas and calculate VaR for the portfolio using both of these methodologies.

# Course Prerequisites

Comfort with basic mathematics, statistics, probability and EXCEL and some familiarity with local markets and portfolio management.

# Course Audience

The course is targeted towards intermediate and advanced users and is aimed primarily at individuals responsible for capital allocation, limit setting and risk management within banks, insurance companies, mutual funds, as well as finance departments of non-financial organizations who need to quickly review or refresh their understanding of VaR methodologies for work or personal development.

# Course Guide

Here is the structure of the course.

## Title | ## Duration | |

Session 1 – Theoretical Overview | 36:06 mins | |

Session 2 – VaR Qualifications | 23:39 mins | |

Session 3 – Calculating VaR for a single security using VCV and Historical Simulation approaches | 44:52 mins | |

Session 4 – Extending the VaR model to a portfolio. Calculating portfolio VaR without a VCV matrix | 33:00 mins | |

Session 5 – Value at risk for Fixed income securities – Rate and Price VaR; Delta and Full Valuation approaches | 10:00 mins | |

We walk through the process of calculating VAR for currencies and commodities. We start will a simple data sheet comprising of 4 currencies. Step by step we construct an excel sheet that handles the calculation of value at risk for each currency under the variance covariance (VCV) and historical simulation approaches. In addition to this we :

- Calculate 10 – day Trailing volatility (minimum and maximum volatility) and its graphical representation which are useful for interpreting VAR results.
- Calculate Daily, annualized and holding period volatility
- Calculate a crude check of the worst case loss and VAR result using the maximum trailing volatility figure and the holding period and present an interpretation of the disconnect between this crude measure and the VCV VAR.
- Show how to install and use the in-built Histogram (Data Analysis) function of EXCEL to determine the worst case loss for the historical simulation approach.
- Compare the VAR results under both approaches.
- Extend the model to commodities including WTI, Brent, Gold, Silver and Natural Gas.
- Calculate Portfolio VaR using the Variance Covariance Matrix Multiplication approach as well as the portfolio return short cut.
- Compare the results of the two approaches
- Calculate VaR for Fixed Income Bonds and differentiate between Price VaR, Rate VaR and Delta Neutral approximation versus the full valuation approach for fixed income securities.