Research on VaR Method of Financial Market Risk Analysis

Abstract

Any business will face some financial risks, it’s not people’s will but no one can ignore its objective existence. However if a business can precisely evaluating the risk analysis and effectively prevent financial risks and control through it, that may bring greater benefit for enterprises. In the past years, more and more enterprises pay attention to their risk analysis and make much effort on maintaining their financial risk management systems. This article outlines the VaR method. VaR (Value at Risk) is a measure of the risk of investments. It estimates how much a set of investments might lose, according to the given normal market conditions, within a set time period such as a day. VaR is typically used by firms and regulators in the financial industry to gauge the amount of possible losses. This article compares the differences between three typical VaR calculation methods. By analyzing their properties, advantages and drawbacks, methods could be implemented in various real situations. The specific situation will find risk control solution effectively. This article gives a detailed introduction of VaR methods, properties and principle and helps enterprises have a clear sight about how to use correct VaR method in a relevant real situation.