If a firm has chosen a percentile and a time horizon that it regards as appropriate and has calculated value at risk for different domains of activity and for the firm as a whole, then it is prepared to answer the last of the three questions posed at the outset.
Profit margins for different lines of business, therefore, should reflect the different amounts of capital they need, as measured by value at risk.
Lastly, value at risk can enable firms to rigorously examine alternative decisions in ways that would otherwise be difficult or impossible.
Likewise, value at risk may help a firm select an appropriate degree of financial leverage.
Value at risk (VAR), the result of this work and the subject of this tutorial, has subsequently become one of the key measures that risk managers use to understand the risks in a portfolio and to compare the risks in one portfolio with those in another.
explain how value at risk is used to measure market risk
outline the Monte Carlo simulation approach to calculating value at risk (VAR)
Historical simulation is one of the three most common approaches used to calculate value at risk.