Value at Risk (VAR): Comparing Historical Simulation and Model-Building Approach

Proceedings of Research for a better tomorrow: Impacts in the 21st Century Conference

3 Pages Posted: 23 Sep 2009

See all articles by Roshan Boodhoo

Roshan Boodhoo

Nottingham University Business School, Malaysia Campus; Alliance Trust Co. (Mauritius) Limited

Rajshree Deeptee Purmessur

Nottingham University Business School, Malaysia Campus

Date Written: August 7, 2009

Abstract

Value at Risk (VAR) is one of the most widely used tools in both financial and non-financial sectors for estimating losses (downside risk). This paper will focus on the comparison of two methods that can be used to compute the VAR; namely the Historical Simulation Approach and the Model-Building Approach. The paper is structured as follows: chapter 2 will review the theories on both methods and discuss possible theoretical advantages, drawbacks and other implications. Chapter 3 presents the data and analysis that will be used in the study. Chapter 4 will analyse the results obtained under each of the abovementioned methods. While the focus is on Historical Simulation and Model-Building Approach, Chapter 5 will make a comparative analysis of the two methods and take into account the possible improvements that can be brought about to increase the accuracy of the VAR measure and this might give more insight on the practicability and applications of VAR in real life situations.

Keywords: VAR, Value at Risk, historical simulation, model-building approach

Suggested Citation

Boodhoo, Roshan and Purmessur, Rajshree Deeptee, Value at Risk (VAR): Comparing Historical Simulation and Model-Building Approach (August 7, 2009). Proceedings of Research for a better tomorrow: Impacts in the 21st Century Conference, Available at SSRN: https://ssrn.com/abstract=1457000

Roshan Boodhoo (Contact Author)

Nottingham University Business School, Malaysia Campus ( email )

Jalan Broga
43500 Semenyih, Selangor
Kuala Lumpur
Malaysia
(230) 7891888 (Phone)

HOME PAGE: http://www.nottingham.edu.my

Alliance Trust Co. (Mauritius) Limited ( email )

22, Flora Park,
St. Jean Road
Quatre Bornes
Mauritius
(230) 4667070; (230) 7891888 (Phone)
(230) 4650077 (Fax)

HOME PAGE: http://www.alliance-mauritius.com

Rajshree Deeptee Purmessur

Nottingham University Business School, Malaysia Campus ( email )

Jalan Broga
43500 Semenyih, Selangor
Kuala Lumpur, Selangor
Malaysia

HOME PAGE: http://www.nottingham.edu.my

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