Abstract
This paper introduces VaR（Value at Risk） principle and uses the Monte Carlo simulation in investment portfolio risk analysis. Monte Carlo simulation may be used to calculate VaR even when a portfolio is strongly non-linear. The procedure of the method is simple and it can provide a great deal of information because it produces the actual distribution of results in the calculation process. One of the main advantages of the Monte Carlo methodology is that it generates a large number of scenarios as a proxy of a wide range of possible future events. The Monte Carlo simulation provides a forward looking approach to compute the risk of a portfolio. This method enhanced investment portfolio risk measure precision and could help mangers to make good decisions. Monte Carlo simulation has the broad prospect in the financial risk management.
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