VALUE AT RISK IMPLEMENTATION IN BUSINESS PRACTICE

EDUARD SKRYPACHOV – JURAJ TILL

https://doi.org/10.53465/EDAMBA.2021.9788022549301.453-464

 

Abstract: Value at Risk (VAR) is a frequently used risk measure. Its concept based on determination of maximal loss for predetermined level of certainty is easy to understand. It is often used by various corporate professionals to measure different risks in the company, but predominantly banking and investment sector is responsible for growth of this approach. The rapid growth of instruments in financial market, support growth of VAR estimation methods, as well as methods for proper validation of this models. Presented paper goes beyond traditional financial instruments and tries to assess usefulness of three different VAR estimation models in cryptocurrency market. The motivation behind this research is to determine whether Normal, Historical or EWMA approaches of VAR estimation can be used for determination of maximal loss in cryptocurrency market with 95% and 99% probability. The performance of these VAR model is measure by number of violations and four different backtests: Basel’s Traffic light approach, Binomial test, POF test and TBF test. The results showed that performance of these VAR models differs based on the type of cryptocurrency and that VAR models perform differently at pre-COVID-19 and during COVID- 19 period.

Keywords: Risk, VaR methodology, risk classification

JEL classification: G24, G31

Fulltext: PDF

Online publication date: 12 May 2022

 

To cite this article (APA style):

Skrypachov, E. & Till, J. (2022). Value at Risk Implementation in Business Practice. Proceedings from the EDAMBA 2021 conference, 453 – 464. https://doi.org/10.53465/EDAMBA.2021.9788022549301.453-464