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Value at Risk Models

In: Enterprise Risk Management Models

Author

Listed:
  • David L. Olson

    (University of Nebraska)

  • Desheng Wu

    (University of Chinese Academy of Sciences
    Stockholm University)

Abstract

Value at risk (VaR) is one of the most widely used models in risk management. It is based on probability and statistics. VaR can be characterized as a maximum expected loss, given some time horizon and within a given confidence interval. Its utility is in providing a measure of risk that illustrates the risk inherent in a portfolio with multiple risk factors, such as portfolios held by large banks, which are diversified across many risk factors and product types. VaR is used to estimate the boundaries of risk for a portfolio over a given time period, for an assumed probability distribution of market performance. The purpose is to diagnose risk exposure.

Suggested Citation

  • David L. Olson & Desheng Wu, 2020. "Value at Risk Models," Springer Texts in Business and Economics, in: Enterprise Risk Management Models, edition 3, chapter 6, pages 79-91, Springer.
    • Handle: RePEc:spr:sptchp:978-3-662-60608-7_6
    DOI: 10.1007/978-3-662-60608-7_6
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