Value-At-Risk | Estimation Methodology And Best Practices (June, 2015) by Louiza CHABANE, Benoît GENEST & Arnault GOMBERT

In the framework of knowledge promotion and expertise sharing, Chappuis Halder & Co. decided to give free access to the “Value-at-Risk Valuation tool” named in our paper “VaR spreadsheet estimator”. It contains the detail sheets simulations for the three main Value-at-Risk methods: Variance/covariance VaR, Historical VaR and Monte-Carlo VaR. The presented methodologies are not exhaustive and more exist and can be adapted depending on the process constraints.

This paper aims to have a theoretical approach of VaR and define all relevant steps to compute VaR according to the defined methodology. And to go further, it seems important to define VaR for a linear financial instrument. Thus, illustrations to monitor the VaR for an equity stock has been performed with a European call option VaR simulations for a better understanding of the concept and the tool. This article only focuses on VaR but will provide opportunities to open to more quantitative risk indicators as Stress-tests, Back-testing, Comprehensive risk measure (CRM), Expected Tail Loss (ETL) or Conditional VaR... more or less linked with the VaR methodologies...

The VaR spreadsheet estimator built through Excel and running using VBA Macros provided by GRA only works for a call option. Note that the VaR spreadsheet estimator is flexible as it is possible to compute the VaR for any underlying asset, for a given time horizon, for the desired volatility and soon.


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