Valor en riesgo (VaR) para un activo riesgoso - Parte 2 de 2

Calculating Value at Risk for an Asset

Introduction to Value at Risk (VaR)

• The session begins with a reminder about calculating the value at risk for an asset, emphasizing the importance of understanding each term in the expression used for calculation.

Data Preparation

• Excel has been utilized to download stock prices of Banco de Colombia from July 3, 2001, to September 2, 2010. The investor seeks to calculate VaR for September 3, 2010.

• Daily returns are calculated using logarithmic scale transformations, which is essential for statistical analysis. A specific region in Excel is named "Rd bco banco Colombia" for ease of calculations.

Variance and Standard Deviation Calculation

• Variance is computed from daily returns; it is crucial as it helps establish risk levels. The variance value obtained is 0.039 with a corresponding risk percentage of 1.97%.

• Standard deviation is derived as the square root of variance and also referenced from previous calculations in Excel sheets. Cells marked green indicate modifiable data points necessary for further calculations.

Confidence Level and Z-value

• A confidence level of 95% corresponds to a Z-value of approximately 1.64, calculated using Excel's standard normal distribution inverse function based on probability input. This Z-value plays a critical role in determining potential losses.

Calculating VaR

• For an investment involving 3,500 shares priced around $28,000 each on September 2nd, the total investment amounts to $1,792,800 pesos.

• Using the formula provided in Excel:

• VaR = F * Market Price * Standard Deviation * √Time Period (where Time Period = 1 day).

• This results in a maximum potential loss of $32,822 pesos on September 3rd due to market fluctuations.

Implications and Coverage Strategy

• The calculated figure indicates that the investor could face a maximum loss of $32,822 pesos; thus they should consider hedging strategies such as derivatives or contracts to mitigate this risk effectively.

Extending VaR Calculation Over Multiple Days

Adjusting Time Horizon

• A scenario is introduced where VaR needs recalculating over ten days while maintaining a confidence level of 95%. This adjustment allows immediate responses through properly parameterized models in Excel.

• For ten days at this confidence level, the maximum potential loss escalates to $10,379 pesos; hence appropriate coverage instruments must be acquired accordingly by investors against this eventuality.

Impact of Increasing Confidence Level

Higher Confidence Level Analysis

• When increasing the confidence level to 99%, it’s expected that risks will either increase or remain constant.

• At this higher confidence level:

• Potential loss over one day rises significantly to approximately $4,640 pesos.

• Over ten days under similar conditions increases further to about $14,679 pesos.

Understanding VaR Limitations

• It’s emphasized that while VaR provides insights into potential losses expressed monetarily (in pesos), it does not guarantee certainty regarding future actions but serves as guidance towards effective risk management strategies against market volatility risks.

Conclusion

The session concludes with reflections on parametric measurement techniques related to value at risk for assets and their implications for investors seeking protection against market risks effectively through informed decision-making processes based on statistical analyses conducted within tools like Excel.