Value At Risk Thesis

Two different years, 2005 with low market volatility and 2008 with high market volatility, are the backtested years.

Expected shortfall has some theoretical properties which make it preferable to value at risk in perfect conditions.

However, these conditions are seldom fulfilled in the markets.

In practice, the robustness of value at risk makes it the more suitable option for banking regulation.

Using a firm-wide Va R assessment allows for the determination of the cumulative risks from aggregated positions held by different trading desks and departments within the institution.

Using the data provided by Va R modeling, financial institutions can determine whether they have sufficient capital reserves in place to cover losses or whether higher-than-acceptable risks require them to reduce concentrated holdings.

For the correlation, all stocks are affected by the volatility and follows the oil and gas prices.

Also salmon is found to have an impact on all stocks, which is suspected to be related to the salmon price`s correlation with the Norwegian economy, which in general follows the oil price.

The commodities include oil, gas, salmon and aluminum, while the stocks are Statoil, Seadrill, DNO, Lufthansa, SAS, Norwegian, MHG and Norsk Hydro.

Further it tests value-at-risk (Va R) estimation of market risk using EWMA and GARCH models to improve the historical model of volatility.

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