Value-at-Risk Calculation - Historical Simulation

[@AN-yr7nm]

simple, good, effective and practical! Awesome, thank you Pat Obi!

[@franmtt4461]

Tks a lot, great Tuto. I watched 4 videos before yours and I was still not confortable with the explanations and I work in trading (though we don’t compute the bar ourselves). Tks!

[@Maria-tn4cn]

best teacher your style is excellent very clear simple

[@Im-Assmaa]

Thank you sir for your video. I have a question I am a finance student, and I am trying to calculate the CoVaR( Conditional value at risk) and VaR(Value at risk) using quantile regression, in order to analyze systemic risk for the banking system. So I already computed the coefficients alpha and beta for the CoVaR equation, using quantile regression in Eviews. Now i have to estimate the VaR for every bank when p=0.05 , So according to this approach, the VaR is equal to the total of quantiles computed for p=0.05 , using Rankit-cleveland definition. I should get a result that look like this, but I do not know how to do it : Descriptive Statistics for RATJ Categorized by values of RATJ Date: 11/13/17 Time: 00:57 Sample: 1/05/2010 11/03/2017 Included observations: 1956 RATJ Quant.* Obs. [-0.1, -0.05) NA 4 [-0.05, 0) -0.023874 816 [0, 0.05) 0.000000 1132 [0.05, 0.1) NA 4 All -0.017742 1956 *Quantiles computed for p=0.05, using the Rankit-cleveland definition. RATJ is the time serie for daily stock returns of the bank ATJ. Thank you so much for your time sir.

[@arjunn1321]

Hi, how did you add the actual VaR line on the distribution?

[@aihainguyen6873]

thank you very much my guy!

[@vivek.ananth]

Love your work man! You saved tons of hassle for me hehe

[@patrickizekor6463]

Thanks for the video. Please i was wondering how you got the $ return/frequency figures. in columns K and L.

[@robertbrady2799]

A really solid explanation and demonstration. Well done and regards!

[@PatObi]

thanks

[@justbecause6472]

There is a special place for you in heaven! Thanks bro

[@PatObi]

Very kind. Thanks.

[@alinafie5140]

Excellent Video! Thank you very much!

[@am_tawana_09]

Great Work.. you explained it well. My question is how did you get the $Return and frequency to be able to plot the graph?

[@vanderdossantos6676]

Pat, great video and easy to understand. Do you know how to calculate Futures VaR? I do have a projct realting to it that I am having some issues.

[@PatObi]

I'll look into it and will post an update once I figure it out.

[@saurabhbcn]

Excellent Pat. Is there anyway to analyse risks for private companies. For public we do have these prices, but for private, we don't. Any pointers?

[@PatObi]

Good question! Not too sure. But I suppose you could use some accounting measure like operating margin, with data generated over several quarters. You'd be calculating the worst case quarterly operating profit margin.

[@saurabhbcn]

@@PatObi Thanks for your quick reply. The issue is that I work with biotech companies that are pre revenue. That implies the risks that they have are scientific, management , regulatory etc. I am researching on how I can build models like VAR but no success yet. Thanks

[@dinggywongg]

Very helpful! Brilliant work!

[@PatObi]

+Wong Dingyao Thanks!

[@damilolailesanmi5029]

Well simplified. Thanks Prof Pat

[@crashtheimf]

enjoyed the level of detail for steps thanks

[@robertbrady2799]

Pat, What would be good is a volatility adjustment to the historical simulation using EWMA and GARCH...... Contemporary performance embellishments should also be examined. Universities in my opinion fail to adequately equip students and merely re-teach 'old' tried and true methods. Portfolio optimization as taught in finance schools is a favorite gripe of mine. Best regards, Robert.

[@PatObi]

Thanks Robert. Great suggestion.

[@tunchou7150]

Really brilliant video, but would you mind teach me the step about how to combine the histogram chart and VaR %loss in one chart? (the one you showed on end of video)

[@bayunugroho3232]

Prof... great video... I already calculated portfolio VaR using mean-variance method (Markowitz)... may I ask you some question pls ? 1) is it okay if I use the past 30 days portfolio returns (Jan 2017) to calculate the historical 1 day VaR ? 2) would you mind giving tutorial about VaR and time-varying volatility in excel , pls pls ? Thx Prof...

[@kabirphoto4297]

I think you need to add quantity and market value on each day instead of multiplying the return to base market value when you started ?

[@elbastaki]

very interesting but could you please explain the figures on Column K and how to calculate them.

[@PatObi]

Tawfiq Bastaki : Thanks for your comment. The process for obtaining the frequency distribution data in Col K is briefly explained on about the 4:46th min of the video. On Excel, click as follows: Data => Data Analysis => Histogram => OK => for Input Range, highlight all returns on Col I => do nothing on Bin Range =>check labels if included => check Output Range and click on spreadsheet where output is desired => OK

[@Craftesha]

Nice explanation

[@TrAndEllaS19]

Great video thank's but if I multipy 700.000$ with 0,29% I get 2.030$ (min.: 03:09) I'm getting a little confused

[@PatObi]

+Phillip Schumacher: Hi Phillip, apologies for delayed response. The values on spreadsheet are formatted to 2 decimal places. That rate of return, corrected to 4 decimal places, is equal to 0.2873%, calculated as ln(195.2/194.64).

[@navinmanohar8067]

Should we use LN to find the returns.. or (latest price - previous price )/ previous price ..?

[@fabiangonzalezreyes]

That's because the assumption that you make when you calculate VaR is that the returns have a normal distribution. Log returns of assets in long period of times approximate to a normal distribution, arithmetic returns not necessarily

[@robertbrady2799]

Oh and by the way.... Merry Christmas to you and yours.

[@PatObi]

Thanks. Same to you!

[@FJHK]

Hello, why do you use the lN formula to calculate the returns instead of using just the variation? thanks

[@girishpatil5902]

Hi pat thanks for sharing the valuable Video just a Quick one can we simple calculate Returns by =(T/T1)-1? I.E ( Current Price /Previous Price )-1 as output looks same for both

[@PatObi]

That's the discrete 'compounding' method of returns calculation. For empirical analysis, it's typical to use the logarithmic form (as demonstrated in the video), because it assumes continuous compounding.

[@KelvinNdambu]

What about a 7- day VaR

[@leilaakhgarpour4202]

Thank you so much. Very helpful.

[@jonathanliriano6743]

Is there a book/working paper that describes these steps that I could cite?

[@chipechipie]

Hi, Did you find one?

[@sarahd6525]

thak you. that was really helpful for me.

[@maurosantus]

Thank you for this. This was a great video. I have a question though that, I believe,would help me a lot understand the whole VaR HS method. What date do I pick if I want to find today’s VaR? Also, are the prices from today or historic too?

[@PatObi]

With historical DAILY data, it would be the VaR you calculate. Refer to the last few minutes of the video.

[@yipanyu7860]

very helpful!!! I have a question, my data is s&p500 and KOSPI two market, but the when i calculate the return some of the data can not be recognized , what can I do it? thanks

[@PatObi]

+yipan yu Hi Yu, make sure your data is all numeric. Yahoo!Finance is a good source for market data. In the Quote Lookup box, type in the symbol for Kospi (^KS11). then select Historical Prices on the left panel. Select dates and Get Prices. Follow my video instruction to calculate logarithmic return as follows =ln(Pt/Pt-1)

[@monour7907]

Thank you Professor, I have a question: for Variance covariance VaR can we use the LN returns ??

[@PatObi]

Yes.

[@ammarhashim4949]

good explanation

[@UchiihaSasuke]

Brilliant!

[@PatObi]

+Gus Montano Thanks.

[@ahmedbayoumi9750]

may i know how the portfolio is calculated

[@PatObi]

Simply add the $ returns of the two assets....4th minute of the video.

[@nayandeshmukh7794]

Thank you

[@Photon-1927]

Many thanks 🙏

[@samehreda3833]

thanks alot , excellent, can you please share with me your excel sheet ?

[@Epistemophiliana]

Thank you ❤

[@am_tawana_09]

To plot the histogram * I mean

[@thetoo6363]

Thank you very much

[@jayteo1989]

Hi, may i know how did you get the red line for the 99% confidence level

[@PatObi]

+Jay Teo It's the 1st percentile of the distribution, calculated as =PERCENTILE(array of cells containing the returns, 1%)

[@monour7907]

Thank you Professor, I have a question: for Variance covariance VaR can we use the LN returns ??