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Essay / Research Paper Abstract
This 5 page paper examines the use of value at risk as a assessment and management tool by investment banks. The paper beings by explaining what VAR is and then looks at the different ways it may be used and the different models that can be chosen. The bibliography cites 6 sources.
Page Count:
5 pages (~225 words per page)
File: TS14_TEVARinb.rtf
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Unformatted sample text from the term paper:
in a variety of banks, including those such as Goldman Sachs, Merrill Lynch is that of Value at Risk (VAR. This has become a globally accepted model. The
model most commonly used by be seen as the model that was developed by J.P. Morgan in 1993 and made available though their RiskMetrics[R] in 1994. It is used wifely,
those making use of it include not only investment banks but also the SEC and the Bank for International Settlements (Krause, 2003).
This is a system which is now popular, and in many ways it is not as new as appears. It looks at what the worst case scenario might actually be.
Alternatively, it may be the worst case scenario that experience has shown can happen, as in some cases this may be limited by bounded rationality. Again the problem with this
system is that risk is quantified in financial terms and as such not all the risks can be taken into consideration, for example the problem of perception regarding purchase decision
by stakeholders and the impact of this, as well as the problems with the some of the less tangible risks that are taken into consideration.
The use of VAR is now seen by many as the benchmark of risk management, vice president of Citibank in London, David Lawrence, describes it as; "the amount
that will be lost if there is a two-standard-deviation adverse move in the market factor over the period required to liquidate or adequately hedge the position, provided that this is
a minimum of one day" (quoted in Marshal, 1999) There will obviously be situations where the deviation is greater than two standard deviations, but in circumstances like this it is
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