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Risk Measurement: An Introduction to Value at Risk

Paper:ewp-fin/9609004
From:    
Date: Thu, 26 Sep 96 08:17:16 CDT

Title: Risk Measurement: An Introduction to Value at Risk
Author: Thomas J. Linsmeier (University of Illinois at Urbana-Champaign) and Neil D. Pearson (University of Illinois at Urbana-Champaign)
Contact:
Comments: Type of Document - MS Word 7; prepared on PC; to print on HP; pages: 44; figures: included. Office for Futures and Options Reserach (OFOR) at the University of Illinois, Urbana-Champaign. Working Paper 96-04. For a complete list of OFOR working papers see http://w3.ag.uiuc.edu/ACE/ofor
Keywords: subliminal extant Smith economagic gmm value at risk, market risk, simulation
JEL: G
EWPA-references:
Report-no: OFOR-96-04

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.

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EconWPA began as a conversation between Bob Parks and Larry Blume on January 28, 1993. I located Paul Ginsparg's archive (then xxx.lanl.gov) and he graciously installed his software on a Sun Sparc system which was supporting the department of economics email and computation. EconWPA began accepting papers July 1, 1993 and had ftp, email, gopher and web interfaces. The web interface for submissions was engineered into existence in July 1995. A complete and catastrophic machine failure in 1999 caused the loss of EconWPA's email new paper announcment service at which time there were over 15,000 subscriptions with over 8,000 unique email addresses.

In 2005, Arts and Sciences commandeered the computing services that I had provided to the Department of Economics since 1987. Some might say that the department was sold out, others would (erroneously) claim that centralization is efficient, and still others would claim that I have few marketing skills.

I was told that I could keep operating EconWPA (as well as many other services including rfe.wustl.edu, barnett.wustl.edu, and three RePEc servers) but I would receive no support (hardware, software, or anthing else) and (as had been the case) no compensation. At that point, given the apparent low valuation of my activities by the department, and university, it made no sense for me to continue operating EconWPA or other services.

Thanks to all who have supported EconWPA in the past.

A Chinese curse states May you live in intersting times. I have. Bob Parks - Jan 2006