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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.
Recently, the Global Association of Risk Professionals (GARP) started a new certification program for energy risk professionals. This article provides an overview of the ERP certification, its benefits and the uniqueness of the program. An energy risk professional is someone who deals with the diverse range of energy commodities and is responsible (directly or indirectly) for managing the risks inherent in dealing with these commodities.
The fundamental assumption of the Historical Simulations methodology is that you base your results on the past performance of your portfolio and make the assumption that the past is a good indicator of the near-future. The below algorithm illustrates the straightforwardness of this methodology. It is called Full Valuation because we will re-price the asset or the portfolio after every run. This differs from a Local Valuation method in which we only use the information about the initial price and the exposure at the origin to deduce VaR.
