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Futures and Options Market

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……………………………………………………………………………. xxxxxxxxx. ………………………………………………………………………………. xxxxxxxxx. …………………………………………………………………………. xxxxxxxxx Course. ………. …………………………………………………………………xxxxxxxxxxxx Title ………………… Value at Risk (VaR) of Reckless Bank PLC @2015 Value at Risk (VaR) of Reckless Bank PLC Reckless Bank PLC takes a bold step to introduce VaR in its investments chain as an assessment tool and this is one of the greatest decisions that the management of the bank has undertaken to care for shareholders. VaR helps managers and risk analyst experts to determine the right market for investment based on different factors such as past data and performance, asset response and correlation of different factors that determine profitability of any venture as argued by ALLEN, BOUDOUKH and SAUNDERS (2004).

Being ready for future investments is the best that any organization can advocate for and Reckless Bank PLC integrating VaR into its systems is a well thought decision that would significantly change the dynamics of investment in the bank. Definition: Supposed a confidence level α(0,1), the Value-at-Risk of a portfolio (in most cases assets) at α over the time period t is given by the minimum figure k such that the likelihood of a loss over a time interval t bigger than k is α.

Risk managers use this definition to estimate VaR of any firm in this case the Reckless Bank PLC using different methods such as historical simulation and Monte Carlo simulation. VaR shows the maximum loss that can be experienced by investors (Reckless Bank PLC) of a given period should they decide to invest on a given project based on a defined time and confidence level. Value at Risk (VaR) is among the common risk assessment tools used globally when measuring any financial risk before any investment for a future market.

Reckless Bank PLC adopting the concept of VaR is the best thing for the bank to undertake because they will reassure their commitment to profitability to their shareholders. The bank management must go the extra mile to understand the application of VaR and its significance in risk management which is vital to decision making process on investment opportunities for future markets. VaR and Historical Simulation (HS) Historical Simulation based on the data for the past two years for Reckless Bank PLC. The HS approach of determining and evaluating VaR is based on the assumption that future returns of a given company such as Reckless Bank PLC will have similar distribution as was the case in the past.

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