Methods for quantitative risk assessment based on VaR: comparative analysis

Abstract

At present, when increasing uncertainty, volatility and turbulence are the main attributes of economic activity, the role of risk management as a tool for ensuring the economic and financial security of economic entities is increasing. Risk management provides a risk forecast in a simple and understandable form, suggests directions and methods for mitigation. For most business entities, quantitative risk assessment is the most acceptable and understandable, and therefore, in recent decades, the Value at Risk (VaR) methodology for assessing asset risk exposure has been used, aimed at assessing and minimizing possible asset value losses. The purpose of the study is to summarize theoretical approaches and best practices for applying the Value at Risk methodology to substantiate and assess financial risks. The object of the study is scientific approaches to the definition of VaR as a measure of risk; the subject of the study is economic relations and patterns that arise in the process of forecasting and minimizing the financial risks of economic entities. The methods of logical analysis, generalization, structuring, economic and mathematical methods were chosen as the main research methods. The empirical basis of the study was data from open information resources, analytical agencies, and statistical materials. The information base of the study is open sources, accumulating data on the quotation of shares of economic entities. The novelty of the study lies in the generalization of the possibilities of applying the VaR methodology for assessing the risks of assets of various business entities, determining the ways of interpreting this indicator depending on the approaches used to determine it. As conclusions and recommendations, the authors present directions for the practical application of the VaR methodology in the presence of various amounts of information and input data.

Keywords

• risk management
• financial security
• quantitative risk assessment methods
• value at risk methodology