How to Use VaR? | Financial Risk Manager Certification | Benefits of FRM Certification Video Lecture | Risk Management: An Essential Training - Management

simply learn your pace your place
financial risk manager frm par one of
the frm exam covers the fundamental
tools and techniques used in risk
management and the theories that
underlie their use putting var to work
welcome to the last module in your
preparation for the first part of the
frm exam this module on valuation and
risk models will introduce some
practical concepts in the field of
financial risk management some concepts
have already been introduced in previous
sessions and now we will apply those
concepts and have an extensive
discussion on a few of them especially
value at risk our first session is on
var and how different approaches can be
used to calculate the VAR of a portfolio
let us begin our session agenda the main
agenda of the session will be describing
the various approaches in calculating
the VAR of a portfolio such as the delta
normal method the full revaluation
method simulation methods stress testing
and scenario analysis will also
highlight the worst case scenario
approach to the calculation of the VAR
by focusing on the tail of the return
distribution in the exam you will be
tested mainly on the concepts presented
in this session and not many numerical
questions will be asked non-linear
derivatives in previous sessions on
features and options we learned about
their pricing if you can recall the
expression was a non-linear function of
the underlying risk factor for linear
derivatives the relationship needs to be
linear that is the variation in the
price of derivative should be a constant
rate with the variation in the price of
the underlying as in the example given
in the slide the price of the derivative
should be equal to the underlying price
multiplied by a constant plus any other
constant term in the case of features we
can approximate the expression to a
linear function for short time intervals
for example in the case of currency
futures the expression given in the
slide can be approximated so
linear function in short-term intervals
in the case of nonlinear derivatives the
price of the derivative does not move at
a constant rate with the change in the
price of the underlying for example in
the case of options the price depends on
multiple risk factors such as time to
expiry underlying price wallet