Monte Carlo Simulation - Example
In the previous post, we learned the algorithm to compute VaR using Monte Carlo Simulation. Let us compute VaR for one share to illustrate the algorithm.
We apply the algorithm to compute the monthly VaR for one stock. We will only consider the share price and thus work with the assumption we have only one share in our portfolio. Therefore the value of the portfolio corresponds to the value of one share.
The following assumptions are made:
| Current share price | $20 |
| Drift | 10% |
| Volatility | 20% |
Members can download the attached spreadsheet below that shows the calculation of VaR using Monte Carlo Simulation.
Lesson Resources
This bundle contains spreadsheets to help calculate value-at-risk in excel.
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