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Risk measurement: an introduction to value at risk

Author

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  • Linsmeier, Thomas J.
  • Pearson, Neil D.

Abstract

This paper is a self-contained introduction to the concept and methodology of "value at risk," which is a new tool for measuring an entity's exposure to market risk. We explain the concept of value at risk, and then describe in detail the three methods for computing it: historical simulation; the variance-covariance method; and Monte Carlo or stochastic simulation. We then discuss the advantages and disadvantages of the three methods for computing value at risk. Finally, we briefly describe some alternative measures of market risk.

Suggested Citation

  • Linsmeier, Thomas J. & Pearson, Neil D., 1996. "Risk measurement: an introduction to value at risk," ACE Reports 14796, University of Illinois at Urbana-Champaign, Department of Agricultural and Consumer Economics.
    • Handle: RePEc:ags:uiucar:14796
    DOI: 10.22004/ag.econ.14796
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    Keywords

    Risk and Uncertainty;

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