Risk Measurement: An Introduction to Value at Risk

Working Paper 96-04

Posted: 6 Nov 1996

See all articles by Thomas J. Linsmeier

Thomas J. Linsmeier

Financial Accounting Standards Board

Neil D. Pearson

University of Illinois at Urbana-Champaign - Department of Finance

Date Written: Undated

Abstract

This paper is a self-contained introduction to the concept and methodology of "value at risk," which is a new tool for measuring an entity's exposure to market risk. We explain the concept of value at risk, and then describe in detail the three methods for computing it: historical simulation; the variance-covariance method; and Monte Carlo or stochastic simulation. We then discuss the advantages and disadvantages of the three methods for computing value at risk. Finally, we briefly describe some alternative measures of market risk.

JEL Classification: G10

Suggested Citation

Linsmeier, Thomas J. and Pearson, Neil D., Risk Measurement: An Introduction to Value at Risk (Undated). Working Paper 96-04, Available at SSRN: https://ssrn.com/abstract=7875

Thomas J. Linsmeier

Financial Accounting Standards Board ( email )

401 Merritt 7
P.O. Box 5116
Norwalk, CT 06856-5116
United States
203-956-5208 (Phone)
203-847-6030 (Fax)

Neil D. Pearson (Contact Author)

University of Illinois at Urbana-Champaign - Department of Finance ( email )

1206 South Sixth Street
Champaign, IL 61820
United States
217-244-0490 (Phone)
217-244-9867 (Fax)

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