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A Method To Find Historical VAR For Portfolio That Follows

S&P CNX Nifty Index By Estimating The Index Value

Ramesh. K.V.N.M* Email:rameshkvnm@gmail.com Developer/Executive BCGS Mobile #: +65 83221677 60B Orchard Road The Atrium@Orchard #10-00 Singapore-238891

Abstract: Financial institutions face the important task of estimating the controlling their exposure to market risk, which arises through different risk factors in their portfolio. Measurement of market risk has focused on a metric called Value At Risk (VaR). VaR quantifies the maximal amount that may be lost in a portfolio for a given period of time, at certain confidence level. For large portfolios the risk factor can be taken as an index. In this paper we come up with a method of estimating Historical VaR for a portfolio that reflects the S&P CNX Nifty index at any point of time. We assume that the value of the index X (t) is independent of time and the distribution of X (t) is not necessarily gaussian.

1 Introduction

In implementing firm-wide risk management there are two big challenges one is to implement interfaces to all the different front-office systems, back-office systems and databases, in order to get the portfolio positions and historical market data into a centralized risk management framework. The second challenge is to use the computed VaR numbers to _________________________________
* Working as a Developer/Executive (Commodities ) Barclays Capital Singapore actually control risk and to build an atmosphere where all participants accept the risk management system.

The main contribution of this paper is to introduce a model, which predicts the boundaries of S&P CNX Nifty index, this can be used for calculating the VaR of a portfolio, which follows that index.

The time series of an index is a

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