Abstract
Value at Risk (VaR) is a tool to predict the greater loss less than the certain confidence level over a period of time. Value at Risk Historical Simulation produce reliable value of VaR because of the historical data and measure the skewness of the observe data. So, Value at Risk well used by investors to determine the risk to be faced on their investment. To calculate VAR it is better to use maximum likelihood, which has been considered for estimating from historical data and also available for estimating nonlinear model. It is also a mathematic function that can approximate return. From the maximum likelihood function with normal distribution, we can draw the normal curve at one tail test. This research conducted to calculate Value at Risk using maximum likelihood. The normal curve will be compared with data return at each bank (Bank Mandiri, Bank BRI and Bank BNI). Empirical results demonstrated that Bank BNI in 2009, Bank BRI in 2010 and Bank BNI in 2011, had less value of VaR by historical simulation in each year. It is concluded that by using maximum likelihood method in the estimation of VaR, has certain appropriates compared with the normal curve.
Highlights
Investment is a postponement of present consumption to get future consumption
In October 2008, there were three big banks in Indonesia, Bank Mandiri, Bank BRI and Bank BNI proposing to assist liquidity from the government for 5 billion Rupiah’s or 520 million dollars each to fulfill the commitment of credit
Value at Risk (VaR) is the cutoff loss such that the probability of experiencing a greater loss is less than 1 percent
Summary
Investment is a postponement of present consumption to get future consumption. When cash was used to buy some investment such as stock, bond or the other securities, investor will expect to get more cash; this is what we called with expected return. After Lehman Brother’s collapsing, US got a difficult condition that trigger crisis of economy in US and global finance in the world included the Bank industry in Indonesia. This crisis causing among other things: the interest rates increasing rapidly, threat to the inflation and stopping credits of investor. In October 2008, there were three big banks in Indonesia, Bank Mandiri, Bank BRI and Bank BNI proposing to assist liquidity from the government for 5 billion Rupiah’s or 520 million dollars each to fulfill the commitment of credit. (Surya & Situngkir, 2006) Because of these reasons, the measurement of VaR that is used in this research is a historical simulation method
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