Value at risk Assignment Example | Topics and Well Written Essays - 3750 words

Value at bump - Assignment ExampleValue at risk provides a way to depict the probability of on making losses. In the paper below, various methodologies are going to be employ to calculate the mensurate at risk of the 4 portfolio personas for the condition year. The methodologies that would be use include The historical manakin, the Monte Carlo simulation and the parametric approach. In separately of the following, there are various crucial move that would be used in calculation of order at risk in the observe at risk to go up with conclusions for the various portfolio shares. The structure of the paper would closelyly be description based of the following approaches mentioned above. tour calculating order at risk in a specific methodology, the following pull up stakes lead to be observed carefully. In each methodology, a description on how one is going to scram at the specific value at risk for the given portfolio is going to be calculated and tear down a histogram plotted where necessary. In addition, one would be expected to comment on the important steps used and give a final verdict of the advantages and the disadvantages of using the given method. After calculating value at risk using the three approaches mentioned above, then a discussion will be conducted to equality the differences in the three methods while attempting to get the value at risk (Jorion 2007, p.6). Then the paper would culmination with a conclusion that would comment on the value at risk of the 4 portfolio shares used.... cause the suppress product of any of the two approaches will be to estimate value at risk, often the most important points remain on whether results calculated by other different methods may differ from each other. In addition, one would still like to know which approach is the most reliable in estimating value at risk. Generally, intuitiveness shows that non-parametric methods, like the historical simulation as well as the parametric methods i.e. Ris k metrics, will often yield the same Value at risk if historical returns data will be normally distributed. In addition, empirical studies also shown that the given predicted results from different Value at risk methodologies are often not close (Choudhry 2006, p.7. The historical simulation often does not impose a given distributional assumptions, sometimes it can be limited when used to forecast the range of certain portfolio value changes since it incorporates no volatility updating plus it produces inaccurate values once the future succumbs to extreme events. In contrast, the Risk metrics, is relatively easy to put in practice. Nonetheless, a given empirical observations on a given returns of financial instruments often do not exhibit the given normal distribution and thereof the method do not fit data with certain heavy tails. Background to the data examine The following 4 companies have been chosen to have the analysis of their value at risk of their share portfolios calcula ted. They are Aggreko PLC, Admiral Group PLC, Amec PLC and the Anglo- American PLC. The Aggreko PLC is a very large international company that deals with provision temporary power plus dealing with temperature control too. Admiral Group PLc is a large push back insurance company that has a head office at Wale, Cardiff . The Amec PLC is hence a global