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

Author

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  • Ioan Trenca

    (Faculty of Economics and Business Management, Babes-Bolyai University of Cluj-Napoca)

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, correla-tions, 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.

Suggested Citation

  • Ioan Trenca, 2009. "The use in banks of value at risk method in market risk," Analele Stiintifice ale Universitatii "Alexandru Ioan Cuza" din Iasi - Stiinte Economice (1954-2015), Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, vol. 56, pages 186-196, November.
    • Handle: RePEc:aic:journl:y:2009:v:56:p:186-196
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