Value at Risk of assets with Monte Carlo simulation

Abstract

Value at Risk (VaR) is a statistical measure that summarizes data in a single risk of a security or portfolio, generating losses resulting from normal market movements. Losses exceeding VaR occur only in abnormal market movements and have therefore a small probability of occurring. In determining that value cash flows and projected need for this we turn to the simulation techniques that consist of frequency distributions assigned to model variables that are at risk and then generate random numbers according to these distributions «mimicking» the behavior that is considered (thousands of scenarios) that will in the future. This makes it possible to give more realism to the model to obtain more reliable results when making a decision.