# Calculating VaR ( Value at Risk) – Course Outline

- Everything assumed in the (VaR) calculations/process is true
- All approximations made are accurate
- The future follows the past and whatever risk you are analyzing only exists for the specified (certain) period

If you are reasonably comfortable with all of the above, then the one number to answer your question is Value at Risk: A worst case loss with limits on time period and probability.

This course takes an in-depth look at the calculation methodologies of the Value at Risk measure. We review Value at Risk (VaR) calculation methods in particular the Variance-covariance approach and the Historical simulation approach. We build a simple portfolio comprising of Euro, Australian dollar, Yen, GBP, Brent, WTI, Gold and Natural Gas and calculate VaR for the portfolio using both of these methodologies.

# Course Prerequisites

Comfort with basic mathematics, statistics, probability and EXCEL and some familiarity with local markets and portfolio management.

# Course Audience

The course is targeted towards intermediate and advanced users and is aimed primarily at individuals responsible for capital allocation, limit setting and risk management within banks, insurance companies, mutual funds, as well as finance departments of non-financial organizations who need to quickly review or refresh their understanding of VaR methodologies for work or personal development.

# Course Guide

Here is the structure of the course.

Title |
Duration |
||

Session 1 – Theoretical Overview |
36:06 mins | ||

Session 2 – VaR Qualifications |
23:39 mins | ||

Session 3 – Calculating VaR for a single security using VCV and Historical Simulation approaches |
44:52 mins | ||

Session 4 – Extending the VaR model to a portfolio. Calculating portfolio VaR without a VCV matrix |
33:00 mins | ||

Session 5 – Value at risk for Fixed income securities – Rate and Price VaR; Delta and Full Valuation approaches |
10:00 mins | ||

We walk through the process of calculating VAR for currencies and commodities. We start will a simple data sheet comprising of 4 currencies. Step by step we construct an excel sheet that handles the calculation of value at risk for each currency under the variance covariance (VCV) and historical simulation approaches. In addition to this we :

- Calculate 10 – day Trailing volatility (minimum and maximum volatility) and its graphical representation which are useful for interpreting VAR results.
- Calculate Daily, annualized and holding period volatility
- Calculate a crude check of the worst case loss and VAR result using the maximum trailing volatility figure and the holding period and present an interpretation of the disconnect between this crude measure and the VCV VAR.
- Show how to install and use the in-built Histogram (Data Analysis) function of EXCEL to determine the worst case loss for the historical simulation approach.
- Compare the VAR results under both approaches.
- Extend the model to commodities including WTI, Brent, Gold, Silver and Natural Gas.
- Calculate Portfolio VaR using the Variance Covariance Matrix Multiplication approach as well as the portfolio return short cut.
- Compare the results of the two approaches
- Calculate VaR for Fixed Income Bonds and differentiate between Price VaR, Rate VaR and Delta Neutral approximation versus the full valuation approach for fixed income securities.

Back to top

## Search the site

## Pages

- Self Study
- Learning Roadmaps
- Asset Liability Management – Learning Roadmap
- Basel II & Basel III Frameworks – Learning Roadmap
- Commodities – Learning Roadmap
- Corporate Finance – Learning Roadmap
- Derivatives Pricing – Learning Roadmap
- ICAAP (Internal Capital Adequacy), Stress Testing and Credit Risk – Learning Roadmap
- Internal Capital Adequacy Assessment Process (ICAAP) – Learning Roadmap
- Monte Carlo Simulation – Learning Roadmap
- Setting Market Risk Limits – Learning Roadmap
- Treasury Products and Operations – Learning Roadmap
- VaR (Value at Risk) – Learning Roadmap

- Topic Guides
- Asset Liability Management (ALM) Crash Course – Topic Guide
- Basel & ICAAP – Topic Guide
- Black Derman Toy (BDT) Interest Rate Model – Topic Guide
- Calculating Value at Risk (VaR) – Topic Guide
- Credit Analysis & Credit Process – Topic Guide
- Derivative Pricing – Topic Guide
- Derivative Products – Topic Guide
- Forward Rates and Forward Prices – Topic Guide
- Heath Jarrow Merton (HJM) Interest Rate Model – Topic Guide
- Interest Rate Simulation Crash Course – Topic Guide
- Monte Carlo Simulation – Topic Guide
- Pricing Interest Rate Swaps & Interest Rate Options – Topic Guide
- Setting Counterparty Limits – Topic Guide
- Treasury Crash Course – Topic Guide

- Video Courses
- ALM and Capital Adequacy – Course Outline
- Calculating VaR ( Value at Risk) – Course Outline
- Cross Selling Treasury Products – Course Outline
- Option Pricing using Binomial Trees – Course Outline
- Option Pricing using Monte Carlo Simulation – Course Outline
- Quant Crash Course – Course Outline
- Selling Derivatives Products – Course Outline
- Setting Value at Risk, Stop Loss, Pre Settlement and Counterparty Limits – Course Outline
- Stress Testing – Course Outline
- Understanding N(d1) and N(d2) – Course Outline
- Pitching for Startups – Course Outline

- Learning Roadmaps
- Store

## Random Testimonial

- ~ Corporate Training Testimonials
"

*A most amazing training - hands down the best, most useful, and most relevant I had during my tenure. Simply put, I loved it and will continue to build on the models.**Financial Modeling Course Participant*

FGB Training Academy,

First Gulf Bank, Abu Dhabi, UAE*I have attended a number of training courses conducted by Alchemy technologies. Broadly, the areas covered have been Financial Risk Management aspects, Basel II implementation in Pakistan, as well as product knowledge for relatively new products in the our market for instance Financial Derivatives. As trainers, Mr. Jawwad Farid and his team bring in a wealth of conceptual knowledge entwined with their own professional experiences, adapting and honing it to our local market needs. The training courses are very informative and are delivered in a witty and energetic manner. The learning needs of the participants are kept in focus, and they are kept involved by interactive discussions and queries. Personally, I have always left these sessions with a much better understanding and grasp over the subjects delivered, which has helped me professionally.”**Senior Manager & Team Leader*

*Treasury Middle Office*

*Habib Bank Limited**“Jawwad Farid has admirably led the training piece on the Treasury side covering Treasury risk, Treausury products, Derivatives (basic & Advanced), Fixed income securities (Basic & Advanced) and ALM training modules. Jawwad in our opinion is an “Outstanding Senior Trainer” who has deep subject matter knowledge and an uncanny ability to keep the participants engaged in the training process. So far our clients have expressed maximum level of satisfaction in Jawwad’s capability to deliver high value training programs, that have tangibly enhanced their staff’s skill sets.*Based on our direct more than satisfactory experience, Jawwad’s otherwise exceptional track record on the training side with over 90 technical skill building courses in South Asia, Middle Eastern and Far Easterm markets, we have no hesitation in strongly recommending Jawwad Farid for the training that for participants based out of Malaysia or the adjoining Far Eastern Markets.”

*Mohammad Nasr Ullah*

*Principal Consultant*

*Consultnomics, FZE**I have loved each and every workshop from Alchemy. The workshops are extremely helpful in removing queries about Derivatives Pricing, Basel & Regulatory issues. I feel attending the workshops have added value to my knowledge and expertise. Moreover, the instructor is extremely knowledgeable on the subject area and ensures that each candidate returns with similar knowledge and expertise.**Senior Vice President*

*Compliance*

*Allied Bank"* **Read more testimonials »**

*
*