The use in banks of value at risk method in market risk management
The use in banks of value at risk method in market risk management

Summary/Abstract: In sophisticated market environments, banks with sufficient liquidity can normally hedge against market volatility. The resulting net effective open position determines the amount of the portfolio that remains exposed to market risk, which Value at Risk can measure. In contrast with traditional risk measures, VaR provides an aggregate view of a portfolio’s risk that accounts for advantage, correlations, and current positions. As a result, it is truly a forward-looking risk measure that applies not only to derivatives but also to all financial instruments. Furthermore, the methodology can also be broadened from market risk to other types of financial risk, using Delta-Normal Method, Historical Simulation, or Monte Carlo Simulation.

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