Estimating Portfolio Market Risk Based on Value at Risk (VaR)

Considerating the day by day ever changing environment and economic systems factors, every day, different risks influence on finance structure of financial institutions. Incremental trend of globalization phenomenon in financial markets, internationalization of economy, financial innovations and create new financial instruments, as well as the vast and fast derivative products development, understanding of the effect of the market circumstances in firm’s situation is powerful more than ever. Therefore, market risk is the important point of view for market players. Market risk is kind of risk that arises in market. It includes several kinds of risk such as: product and stock price risk, bull bear market risk, exchange rate risk and etc. In this paper, we want to answer this question that “how market risk of portfolio can estimate whit value at risk mode”. this research based on special manner of data gathering called correlation research. VaR is the statistical measure of the risk that estimates the maximum loss that may be experienced on a portfolio with a given level of confidence. In this article, at first, we considered the importance of risk management, and then explain the role of market risk in financial market of our country. In continue, we will presentation the efficient instrument for calculate portfolio market risk management. Finally, we will calculate amount of portfolio VaR for an investment company as a case study. Research outcomes indicate that seven percentages from capital or value of portfolio tantamount to 11 millions Rials, exposure at market risk. Whereas this measure specify amount of company’s value at risk for financial managers, operate better than past models.