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Saturday, August 11, 2012

PowerPoint Presentation On Value at Risk

PPT On Value at Risk

Presentation Transcript:
1.VaR (Value at Risk)

2.Risk Measurement
This involves projecting future prices and rates and using these projections to estimate the risk of loss of the portfolio.
Estimating magnitude of any potential adverse changes in individual risk factors(the volatility of market prices) to allow the quantum of any loss to be estimated.
The inter-relationship of changes between market risk factors (the correlation between risk factors) to allow incorporation of any benefits of diversification of risks within the portfolio.
One technique that permits such a measurement is VaR (Value at Risk).

3.The Value at risk measure
VAR is the loss over N days that will not be exceeded at a X% level of confidence.
VAR is a function of two parameters:
    1. N – time horizon in days
    2. X – confidence
The two main approaches to calculating VaR:
    1. Historical simulation
    2. Model–building
In calculating a bank’s capital, banks use N = 10 and X = 99%.
This is the loss level on a 10–day horizon that is expected to be exceeded only 1% of the times.
The capital they require the bank to keep is at least three times this measure.

4.The time horizon

5.Historical VaR
Historical simulation involves using past data as a guide to what might happen in the future.
Suppose that we want to calculate VaR for a portfolio using a one–day time horizon,
99% confidence level and 500 days of data.
    1. Identify market variables affecting the portfolio – exchange rates, equity prices, interest rates etc.
    2. We collect the movement in these variables over the last 500 days. This provides 500 alternate scenarios between today and tomorrow.
    3. We value our portfolio under these 500 alternate scenarios. This provides a probability distribution for daily changes in our portfolio.
    4. We rank the scenarios from worst to best. The fifth worst scenario is the first percentile of the distribution. At a 99% confidence level, this is the loss we will incur on a one–day horizon.

What is the VaR at 95% level of confidence? Which observation will give us the value of VaR using a data set of 500 days?

7.Our portfolio
• A well diversified portfolio consisting of 50 stocks.
• Three years of daily price data
• Daily prices converted to daily returns
• The returns series is then analysed

8. For More Please Refer Our PPT.
Thank You.

PowerPoint Presentation On Valuation of Bonds and Shares

PPT On Valuation of Bonds and Shares

Presentation transcript:
1.Valuation of Bonds and Shares

Assets can be real or financial; securities like shares and bonds are called financial assets while physical assets like plant and machinery are called real assets. The concepts of return and risk, as the determinants of value, are as fundamental and valid to the valuation of securities as to that of physical assets.

3.Features of a Bond Face Value
Interest Rate—fixed or floating Maturity Redemption value Market Value

4.Bonds Values and Yields Bonds
with maturity Pure discount bonds Perpetual bonds

5.Bond with Maturity

6.Yield to Maturity
The yield-to-maturity (YTM) is the measure of a bond’s rate of return that considers both the interest income and any capital gain or loss. YTM is bond’s internal rate of return.

7.Current Yield
Current yield is the annual interest divided by the bond’s current value. Example: The annual interest is Rs 60 on the current investment of Rs 883.40. Therefore, the current rate of return or the current yield is: 60/883.40 = 6.8 per cent. Current yield does not account for the capital gain or loss.

8.For calculating the yield to call, the call period would be different from the maturity period and the call (or redemption) value could be different from the maturity value. Example: Suppose the 10% 10-year Rs 1,000 bond is redeemable (callable) in 5 years at a call price of Rs 1,050. The bond is currently selling for Rs 950.The bond’s yield to call is 12.7%.

9.Pure discount bond do not carry an explicit rate of interest. It provides for the payment of a lump sum amount at a future date in exchange for the current price of the bond. The difference between the face value of the bond and its purchase price gives the return or YTM to the investor.

10. Thank You.
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