The consept of value at risk in risk managament: Theory and applications on ISE

Financial risks have left deep marks on financial world, particularly since the late 20th century. After the financial scandals and crisis have been occurred in 1990s, interest on risk management has increased and methods regards to risk measurement have been improved. With recommendations of regulatory authorities, Value At Risk Method has become the most used method in risk measurement.The Aim of this study is to give information on the types of risks which financial institutions are exposed to, to explain most widely-used Value At Risk Methods in market risk measurement and to estimate Value At Risk of portfolios those have been formed hypothetically.In the phase of application, two separate models have been built. In the first model, a hypothetical portfolio has been formed with the stocks of ISE-30 Index and Value At Risk of given portfolio has been calculated with Variance-Covariance and Monte Carlo Simulation methods in Microsoft Excel. In the second model, we formed a hypothetical portfolio with stocks of IMKB-All Index. Value At Risk of this portfolio has been calculated with Variance-Covariance method in Microsoft Excel. Additionally, in the second model ARCH, GARCH, PARCH values have been calculated for chosen periods and reflects of crisis periods on Value At Risk values have been observed.According to results, it is clearly seen that two models we built are both considering price variations resulting from volatility of markets and providing a close forecast at value at risk calculation.Key Words: VAR (Value at Risk), Measurement of VAR with Variance-Covariance Method, Measurement of VAR with Monte Carlo Simulation Method, Market Risk Measurement, ARCH, GARCH, PARCH