This paper is a self-contained introduction to the concept and methodology of "value at risk," which is a new tool for measuring an entity's exposure to market risk. We explain the concept of value at risk, and then describe in detail the three methods for computing it: historical simulation; the variance-covariance method; and Monte Carlo or stochastic simulation. We then discuss the advantages and disadvantages of the three methods for computing value at risk. Finally, we briefly describe some alternative measures of market risk. 

Viewing The Paper

There are two ways to view and print the paper:

1) The Economics Working Paper Archive at Washington University (EconWPA)

This paper is posted on the Economics Working Paper Archive (EconWPA) at Washington University. The paper is listed under the "Finance" section paper # 9609004 . The archive lists an abstract of the paper along with files of the paper that can be viewed and printed. The papers are posted in Adobe Acrobat (*.pdf) format, Postscript (*.ps) format, and in HTML (*.html) format.

Click here to access the EconWPA holding of this paper.

Note: you may have to down load a free copy of the Adobe Acrobat Viewer to view the paper in *.pdf format.

2) The MicroSoft Viewer

To use the Microsoft Viewer Software (freeware) follow the three simple steps:

STEP 1...Download a FREE copy of the Microsoft Viewer

STEP 2...Configure the Microsoft Viewer with your web browser. Directions are provided with the Microsoft Viewer Program. Note, the program only has to be loaded once. You do not need Microsoft Word to use this application. This application should work across platforms.

STEP 3...Click on WP0496.doc to view and print the document.

Note...this is a large paper and depending on your computer capacity, you may not have enough memory to view it using the MicroSoft Viewer.