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Using Monte Carlo simulation to calculate Value At Risk

  • Thread starter Deimantas
  • Start date
1. The problem statement, all variables and given/known data
Calculate 5-day 1% Value at Risk of a portfolio using Monte Carlo simulation.

2. Relevant equations

3. The attempt at a solution
I've found an article explaining how to perform Monte Carlo simulation on portfolio returns therefore calculating the Value At Risk (pdf attachment). I've followed all the instructions and implemented it in Excel (zip attachment).
There are 3 main methods to estimate the VaR of a portfolio - historical simulation, parametric approach and Monte Carlo simulation. Historical simulation gives 5-day VaR=566.59, parametric approach gives 5-day VaR=486.92, and here Monte Carlo simulation gives 5-day VaR equaling around 360. I doubt the Monte Carlo result is accurate (seems way too low). I'm afraid there might be some errors in my excel implementation. I'd appreciate it if someone could kindly help me spot them.


Thanks for the post! This is an automated courtesy bump. Sorry you aren't generating responses at the moment. Do you have any further information, come to any new conclusions or is it possible to reword the post?

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