Measuring portfolio risk by value at risk approach: An application into futures markets

Risk of financial systems have gained variety, have expanded their dimensions and therefore; the whole active firms are influenced by the globalisation process, which started about 1990s and continues up to the present days. Due to the insuccessful experiences, not only the financial products configured to hedging but also the methods of risk measurement have gained a reputation. Thanks to the global financial crisis, the need for risk assessment and its management is understood better. Today, the revolutionary method of Value at Risk (VaR) is the heading approach in the world of risk assessment. VaR is the expected maximum loss in a certain time interval and in a specific confidence level. Moreover, the method summarizes the total risk only as a value. In the literature, parametric and simulation methods have been applicated. Due to its current agendas, in addition to these methods, the estimation models of variance are also implemented. In VaR, using the estimation models of variance is emphasized as the most influential method at determining the size of the real risk. Nevertheless, both assessment of risk and financial intruments have to be utilized as an reinforcement so as to hedge for an effective risk management. Currently, the methods of VaR, which is one the prominent derivatives, on forward contracts is the main issue of the study. In this context, portfolios are created by active contracts of Turkish Derivatives Exchange (TURKDEX), the only authorized stock market, and the results of VaR calculated by using diverse methods have been examined. The success of the results of VaR methods was compared with backtesting and as a result of this, the most valid method in Turkish Market is identified as GARCH(1,1) method and is recommended. Because of its reputation, financial risks, the various risks of contracts and risk management methods have been carefully vetted not only the theoretically but also practically. Keywords: Financial Risk Management, Value at Risk, Market Volatility, Backtesting.