Any transaction undertaken by a bank carries an element of risk. Value-at-risk, or VaR, quantifies the probability of loss to a dollar value. Moorad shows how this is achieved using the variance-covariance method.

Overview

A bank will wish to estimate the extent of its risk exposures so that it can better manage its P&L account, and gain an accurate estimate of its future capital requirements. VaR is a methodology that can be used to value this risk exposure. VaR measures the potential loss in market value of a portfolio using assumed or estimated volatility.

Key learning objectives:

What is VaR?

What are the main VaR methodologies?

How do we calculate VaR using the variance-covariance method?

Summary

Expert### Moorad Choudhry

Former senior banker with almost 30 years experience. Moorad has held senior roles in commerical, investment and retail banking. He has also spent the last five years as a visiting professor.