The estimation of investment risk in an asset portfolio by using value at risk method (VAR)

Abstract

This study attempts to use value at risk method (VAR) as risk measurement criterion in formation of household asset portfolio. To do this, the data which are related to the assets price including: bank deposit, bonds, stock, exchange, coin, and housing that are used in time period of 1991 to 2011 and the value at risk of portfolio is calculated in reliability level of 90%, 95%, and 99% and in time periods of one year and 19 years. After calculating returns, return standard deviation, correlation coefficient among assets and VAR of every asset, the optimal mix of assets is extracted by using variance- mean model and Matlab software and assets portfolio risk is calculated by VAR method. The results indicated that there is the most portfolio risk of 55/13% with the probability of 99% for high risk people and the lowest portfolio risk of Zero%, with the probability of 90% for low risk people. In one year period, there is also the most portfolio risk of 17/51% with the probability of 99% for high risk people and the lowest portfolio risk of 88% with the probability of 90% for low risk people.