Value at Risk or VaR, a tool to master market risk, explained in clear terms with Excel model.
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- čas přidán 1. 04. 2020
- Value at Risk or VaR is a risk management tool banks use to manage their exposure to market risk. In the video we explain what VaR is and how you can calculate VaR yourself using historical price data. We show how to calculate Value at Risk with the help of a clear Excel example. The example follows the historical method using Yahoo finance data.
Good luck! André Koch
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Thanks for the best explanation video.
You're welcome!
Thanks for the theory and the examples
You are very welcome, thanks !
Thank you so much.. very easy to understand
You are welcome ! André Koch
Thanks for the great work
You're welcome!
Very nice video!
Thank you very much "dragon slayer". Best, André Koch
that is an excelent video!!
Thank you!
First of all, thank you for the explanation it's very helpful. However I got confused from 6:45 to 7:25 , it says that 475 of cases are covered by the Var and 25 are not, then it proceeds to say that the orange area is covered by the VaR and the blue area is not, but then it says that 25 observations are in the blue tail (uncovered) and 450 are in the orange area (covered). isn't the 450 mentioned supposed to be 475? or there's something I don't get? I'm confused
Thanks Aicha for your comment, and you are completely right. It should be 475. Let me see whether we can change this. All the best, André Koch
If I wanted to find the annual VAR how could I convert this number from daily to annual?
Good question. Intuitively, you understand that with a longer period also the uncertainty goes up. You can calculate this using the square root rule. You multiply the one-day VaR with the square root of the number of days. So, the 9 day VaR would be: square-root of 9, which is 3, times the one-day VaR. For the year you multiply with the square root of 365. Best, André Koch
Thank you for the video and explaination. However, I wonder how you set up the bin value from-8% to 13%?
Hallo, next to the bin size you also need to set a realistic range for these bins. In the video I do this by using Excel's =MIN() and =MAX() functions. This way I am sure that all the delta's observed fit in between. Best, André Koch
Thanks for the work you did to bring us this great instructive video. Just one observation: in minute 10:24 you set the lower bin at -8%, but the delta range starts at -13%, as you did in the previous chart. Am I correct?
Thanks for comment and sorry for the late reply: yes you're right! I did this to get a nice range and ignore some outliers. Best, André Koch
Thank you for the video. I have a question. How can I compute the quantiles for a specific p, using Rankit-cleveland method? It is used to estimate the value at risk using quantile regression and I am kind of stuck. please help
Sorry, I am not familiar with this Rankit-Cleveland approach, so I cannot help you. Best, André Koch
Any video or explanation on Profit-at-risk (PaR) plz?
No sorry, not on the list. Best, André Koch
Thank you. I do have a question-how did you generate the chart? Thanks.
The chart actually consists of two charts and two data sets. See for an example: www.officetooltips.com/excel_2016/tips/how_to_add_dividers_to_the_chart.html
@@StachanovSolutionsServices Thanks!!
It''s a pleasure. Yes, I always show the clip form Margin Call whenever I teach about VaR. All the best, André Koch
7:16 how did u colored the areas differently with excel. Can't u just provide a download link to the excel file? Video liked and subscribed.
Ok u r describing it at the end of the video. Great video, liked it a lot!
Actually, the two colors are two separate data ranges. Send me an email and I will share an example : andre@stachanov.com. Best, André Koch
@@StachanovSolutionsServices Ty Andree, just wrote u an e-mail.
@@StachanovSolutionsServices Hi André, hope ur doin good. Did u receive my e-mail? Ty, Kig.
Are those techniques being used world wide?
Yes, that is the case. Keep in mind that what is shown here is a simplified model that just shows the principle behind VaR. During the financial crisis of 2008/9 there was much criticism on the use of VaR. The famous risk guru, Nassim Taleb, opposed the use of VaR. Best, André
Is it possible to get the Excel sheet?
Yes, please send me an email andre@stachanov.com Best, André
Change of plans:
I will upload it here: www.stachanov.com/en/downloads
It will be there in 15 minutes. Best, André Koch
maximum you can lose with confidence level 95% (arbirary set) with short time line (24 hr for example, as bank assume it can sell in financial market).
deltaprice equals natural log of todays price over yesterdays price.
look at frequency of those deltaprice.
Yep. The 95% is just to give you an idea. Twenty years ago or so this was a common threshold, nowadays it is more like 99% and up. Indeed the 24 hours is under the assumption that you can always sell your portfolio on the market. It is understood that this might be more difficult in times of a financial crisis. Have you seen the movie "Margin Call" ? The movie is a popular big picture movie on the 2008/9 financial crisis, however, there are some interesting discussions on VaR in this movie. Just google "Margin call" & "VaR" and you will find them. Best, André Koch
@@StachanovSolutionsServices I absolutely love "Margin Call." It's as accurate a description of the MBS/CDO implosion as possible. Even Ramesh Shah from "upstairs" would agree.
I request you to please explain. Measuring the credit shock and its reflection on the financial and banking safety, and that the translation in Arabic should be activated. Thank you for your patience, sir
Hello Muayad Najm, see the instruction here to activate the Arabic translation: czcams.com/video/DcyC9xATsz8/video.html
As for financial shock effects, I refer tot the vido on "Stress testing" czcams.com/video/qWJjS5V0iTI/video.html
I hope this all helps. Best, André Koch