Financial risk analysis of the 260-day value at risk (var) of a portfolio of 4 shares

 It is evidently clear from the discussion that Value-at-Risk was first used in the late 1980’s by investment banks and security houses to measure the risk of their trading portfolios. In fact the word value at risk was first published in a G-30-report in 1993. However, the analysis became more prominent after the 2007 financial crisis after JP Morgan gave a presentation on quantitative tool that can measure market risk through VAR. The VAR of a portfolio is the maximum loss expected to occur with a certain probability over a given time period given a probability (usually between 5 percent and 1 per cent) that the portfolio will perform below expectation. VAR is an analysis tool that is used to pinpoint risks that exist in a given portfolio. Many financial traders often apply some sort of VAR regime, which help them set their limits. Therefore, VAR is widely used by various companies worldwide with managers in brokerage firms, investment funds and corporate using it to measure their financial risk. In the banking sector, bank regulators use Value-at-Risk in determining how much capital a bank and other financial institutions should possess in line with the market risks it is bearing. The aim of this study is to use Analytic VAR, historical (Bootstrap) VAR and Monte Carlo (MC) VAR simulation as alternative approaches of calculating VAR. The listed companies being analysed are listed in the FTSE 100 index in the London Stock Exchange. The first company in the analysis is Imperial Tobacco Group PLC. The company was founded in 1901 and is involved in manufacturing, marketing, distribution, and sale of tobacco and tobacco-related products that include cigarettes, fine cut tobacco, cigars, snus, tubes, filters, and rolling paper products, as well as roll your own, make your own, and pipe tobaccos. Imperial Tobacco Group PLC also provides logistics services for tobacco product manufacturers, as well as to various customers in the convenience, telecommunications, transportation, pharmaceutical, publishing, and lottery sectors. The company is based in Bristol, the United Kingdom and has a market capitalization of 24,560.76 million pounds (Imperial Tobacco Group PLC, 2011). The second company in the analysis is Tate & Lyle PLC. The company is headquartered in London. the United Kingdom and offers its products primarily in Europe, the Middle East, Africa, the Asia Pacific, and the Americas. This includes manufacturing and sale of ingredients and solutions to the food, beverage, industrial, animal feed, pharmaceutical, and personal care markets. Tate & Lyle PLC has a market capitalization of 3,361.55 million pounds (Tate & Lyle PLC, 2011). The third company in the analysis is National Grid plc. The company owns and operates regulated electricity and gas infrastructure networks in the United Kingdom and northeastern United States. The company operates high voltage electricity transmission networks, electricity interconnectors, gas distribution systems and liquefied natural gas storage activities in the Great Britain, New York, Canada and New England. The company serves residential and commercial consumers through the delivery of gas, generation and distribution of electricity to approximately 8 million customers in New England, upstate New York and Long Island.

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