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VaR Model for Managing Market Risk of Portfolio

In: Macroeconomic Risk and Growth in the Southeast Asian Countries: Insight from SEA

Author

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  • Firman Pribadi
  • Arni Surwanti
  • Wen-Chung Shih

Abstract

In this study, the authors propose a VaR method for evaluating the market risk of investing in the stock portfolio of Pension Institutions. The data used for this research is hypothetical data, including the exposure or the amount of value invested by Pension Institutions in their stock portfolio. With the VaR – Monte Carlo simulation, the authors know the loss level will occur when the Indonesian economy or market conditions deteriorate. The lost value amount is determined in the Rupiah value, according to the confidence level or the desired percentile level. The results revealed that at the 5% (99.95%) percentile level of confidence, a pension fund with an investment value of IDR 4,070,000,000 would suffer a loss of IDR 1,110,000,000. While at the 1% (99.995%), the loss rate will be of IDR 1,480,000,000. The conclusion is that the results of this study are useful for Pension Institutions in managing their asset portfolios with the VaR model.

Suggested Citation

  • Firman Pribadi & Arni Surwanti & Wen-Chung Shih, 2023. "VaR Model for Managing Market Risk of Portfolio," International Symposia in Economic Theory and Econometrics, in: Macroeconomic Risk and Growth in the Southeast Asian Countries: Insight from SEA, volume 33, pages 165-172, Emerald Group Publishing Limited.
    • Handle: RePEc:eme:isetez:s1571-03862023000033b011
    DOI: 10.1108/S1571-03862023000033B011
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    More about this item

    Keywords

    Market risk; value at risk; Monte Carlo simulation; Pension Institutions; investment decision; stock market portfolio; G3; G32; G11;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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