The purpose of this article is to provide a step-by-step approach to value at risk. And it is showed how to use the VAR concretely as a tool of risk management. Each method has detailed examples.
This study is focused on the way to use VAR in order to manage total risk as a whole of any financial institutes. Recently the need for VAR is emerging as the derivatives market such as Kospi 200 futures and stock index options market was founded in 1996 and 1997 respectively.
The result of empirical test shows that the VAR values are full of variety according to confidence level, the length of holding horizon and so on. But the greatest advantage of VAR is that it summarizes in a single number, easy to understand, the total exposure of and institution to market risk.
