Explain the VaR framework and its utility in Risk Management Essay

Explain the VaR framework and its utility in Risk Management - Essay Example VaR can be said to be an easy method of measuring the market risk. As of date, VaR technology has spread its wings well beyond financial derivatives and is completely transforming the style the financial institutions’ approach to their financial risk. Initially, VaR is employed to measure the market risk, but now it is being employed to administer and control risk actively. The VaR methodology is now assisting the industry to reckon both operational and credit risk, resulting in the sangraal of companywide management of risk1. (Jorion 2009: x). VaR employs a method of valuation of risk that uses standard statistical methods employed regularly in other technical sectors. In simple terms, VaR can be explained as the most speculative loss over an objective horizon that will not be surpassed with a given level of confidence. Footed upon the company’s scientific founding stones, VaR offers users with a detailed synopsis of market risk. (Jorion 2009: x). . 2 Backgrounds For t hose companies and financial institutions that are vulnerable to risks, management of risk is a vital function. There has been a real reform in the risk-management process, especially in the last decade and VaR is regarded as one of the solutions that received wide publicity in business circles. As per Holton (2003), the main fundamentals of the VaR can be traced back to as early 1922 when the New York Stock Exchange prescribed capital norms for its members. Until 1952, research in VaR was not in progress. Two independent researchers namely Roy and Markowitz almost concurrently advanced but with different version of measuring the risks and the same were published in 1952. As per Holton (2003), the two authors mentioned above were engaged on establishing a way of choosing portfolios that would be facilitating to obtain the benefit for certain level of risk. Holton was of the view that it took nearly four decades until VaR measurement started to be broadly employed by companies and fi nancial instructions. As per Fernandez (2003), the worst financial crisis that occurred in 1987 and the crisis that forced to find a solution by the Basel Committee that all banks should keep adequate cash reserves so that it can cover probable losses in their trading assortment over a 10 –day marked and 99% of their time. With the help of VaR, the quantum of cash to be maintained will be decided. Due to poor risk management process and poor supervision, a huge volume of money can be lost, which was well evidence from the past financial crisis. Thus, VaR has widely been acknowledged as a breakthrough process due to historical errors that crept into the risk -management process. (Holton 2002). As of today, the usage of VaR is being widely employed in financial institutions but there is only limited usage of VaR in non-financial firms. This can be explained that why companies do not employ VaR as they do not normally predict their profits and losses on daily footings that are n ot impacted by volatility in prices in the short-run. However, Mauro (1999) stresses that VaR can be employed even by non-financial firms (companies) that are not impacted by volatility in prices, especially in a short-time horizon. Thus, the chief advantage of VaR is that it is a yardstick that can be employed to almost every

Global warming Speech or Presentation Example | Topics and Well Written Essays - 250 words

Global warming - Speech or Presentation Example Pollution refers to any foreign material that is discharged into water, air or land. These materials either have acute or chronic effects on the environment. The pollutants discharged into air lead to global warming. Some of the pollutants include Carbon IV oxide, methane, nitrous oxide, fluorinated gases among others (Faust, 2008, p51). The greenhouse effect is the leading factor that leads to global warming. The Greenhouse effect, as it is commonly known, refers to the consequences of the emission of greenhouse gases into the atmosphere (Faust, 2008, p79). Greenhouse gases absorb infrared radiation from sunlight and in the process trap heat in the atmosphere. The production of greenhouse has increased in the recent past and this attributable to the pace of modernization. Fossil fuels are still being used in factories and vehicles, in spite being in the 21st century fossil fuels. The combustion of fossil fuels increases the percentage of CO2 in the atmosphere (Faust, 2008, p83). The increase in the percentage of Carbon (IV) Oxide leads to increased global warming. The sun emits ultraviolet radiation and the ozone layer shields us from this radiation. The layer is made up of Ozone (O3), which is very rare compared to other gases in the atmosphere (Faust, 2008, p21). Studies have found that increase global warming reduces the potency of the ozone layer of absorbing UV radiation. Global warming slowly increases the temperature of the Earth’s surface; thereby leading to a cold stratosphere. Reduced temperatures lead to the slower repairing of the layer exposing humans to dangerous UV radiation. This radiation causes cancer in both humans and animals (Faust, 2008, p34). Global warming has adverse effects that are hard to ignore. Furthermore, scientists forecast a bleak future for the human race if global warming is not reduced. Reducing the emission of greenhouse gases reduces global warming (Faust, 2008, p84). The