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ESTIMATING RISK ON THE CAPITAL MARKET WITH VaR METHOD

Author

Listed:
  • Bogdan, Sinisa

    (University of Rijeka, Croatia)

  • Baresa, Suzana

    (University of Rijeka, Croatia)

  • Ivanovic, Zoran

    (University of Rijeka, Croatia)

Abstract

The two basic questions that every investor tries to answer before investment are questions about predicting return and risk. Risk and return are generally considered two positively correlated sizes, during the growth of risk it is expected increase of return to compensate the higher risk. The quantification of risk in the capital market represents the current topic since occurrence of securities. Together with estimated future returns it represents starting point of any investment. In this study it is described the history of the emergence of VaR methods, usefulness in assessing the risks of financial assets. Three main Value at Risk (VaR) methodologies are decribed and explained in detail: historical method, parametric method and Monte Carlo method. After the theoretical review of VaR methods it is estimated risk of liquid stocks and portfolio from the Croatian capital market with historical and parametric VaR method, after which the results were compared and explained.

Suggested Citation

  • Bogdan, Sinisa & Baresa, Suzana & Ivanovic, Zoran, 2015. "ESTIMATING RISK ON THE CAPITAL MARKET WITH VaR METHOD," UTMS Journal of Economics, University of Tourism and Management, Skopje, Macedonia, vol. 6(1), pages 165-175.
    • Handle: RePEc:ris:utmsje:0146
    as

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    References listed on IDEAS

    as
    1. William F. Sharpe, 1963. "A Simplified Model for Portfolio Analysis," Management Science, INFORMS, vol. 9(2), pages 277-293, January.
    2. David Cabedo, J. & Moya, Ismael, 2003. "Estimating oil price 'Value at Risk' using the historical simulation approach," Energy Economics, Elsevier, vol. 25(3), pages 239-253, May.
    3. Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, March.
    4. Katerina Simons, 2000. "Use of value at risk by institutional investors," New England Economic Review, Federal Reserve Bank of Boston, issue Nov, pages 21-30.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Angelovska, Julijana & Ivanovski, Zoran, 2018. "Accuracy In Risk Estimation Based On Simple Sma And Ewma Models:Evidence From Macedonian Stock Market," UTMS Journal of Economics, University of Tourism and Management, Skopje, Macedonia, vol. 9(1), pages 17-27.
    2. Nakovski, Dejan & Milenkovski, Ace & Gjorgievski, Mijalce, 2018. "Indicators For Defining The Emitting Areas In Tourism," UTMS Journal of Economics, University of Tourism and Management, Skopje, Macedonia, vol. 9(1), pages 39-48.
    3. Baresa, Suzana & Bogdan, Sinisa & Ivanovic, Zoran, 2018. "The Performance Of Minimum Variance Portfolios In The Croatian Tourism Sector," UTMS Journal of Economics, University of Tourism and Management, Skopje, Macedonia, vol. 9(1), pages 63-72.
    4. Novkovska, Blagica & Serafimovic, Gordana, 2018. "Recognizing The Vulnerability Of Generation Z To Economic And Social Risks," UTMS Journal of Economics, University of Tourism and Management, Skopje, Macedonia, vol. 9(1), pages 29-37.

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    More about this item

    Keywords

    Value at Risk; Parametric; Monte Carlo; Capital market;
    All these keywords.

    JEL classification:

    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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