Value at Risk

Variance - Covariance Method

Session 2

Asset Weights (USD)

Volatility

1,000,000

10.00%

1,000,000

12.00%

1,000,000

8.00%

Correlation
A

1.00

0.90

0.80

0.90

1.00

0.90

0.80

0.90

1.00

Matrix Multiplication
10%
0%
0%

0%
12%
0%

0%
0%
8%

0.01

0.0108

0.0064

0.0108

0.0144

0.00864

0.0064

0.00864

0.0064

33840

21440

Covariance Matrix

Matrix Multiplication (weights)

27200
Portfolio Variance
82,480,000,000
Portfolio Volatility
287,193.31

2.33
669,160.42
3000000
2,330,839.58

Covariance Matrix for N assets (positions)

Std Deviation (diagonal matrix)
Covariance =

(1)

0
(2)

(...)

(n)

Correlation Matrix

1.00 .
(2,1)
.
(n,1)

Portfolio Variance N assets (positions)

Weights
Variance =

[ w(1) w(2)

w(...)

1.00
.
.

Covariance Matrix

w(n) ]

Var(1)
(2)(2,1)(1)

.
Var(2)

(...)(...,1)(1)

(n)(n,1)(1)

Correlation Matrix

.
.

Std Deviation (diagonal matrix)

(1,n)
(2,n)
1.00 .

(1)

1.00

Covariance Matrix

0
(2)

(...)

(n)

Weights (transpose)

(1)(1,n)(n)

(2)(2,n)(n)

Var(...)

(...)(...,n)(n)

Var(n)

w(1)
w(2)
w(...)
w(n)

MC Simulation
Generate random paths
Initial Asset Price
Drift
Implied Volatility

Normsinv()
Inverse of the standard normal cumu
Mean = 0, Std Dev = 1

100
2.00%
12.00%

Year-end simulated value

85.88937

Days

Ending Value
100
1.010846 101.0846
0.999614 101.0456
1.000425 101.0885
0.993297 100.4108
0.992945 99.70248
0.993032 99.00771
0.991785 98.19432
0.99695 97.8948
1.011217 98.99285
1.007634 99.74853
1.007373 100.484
1.017312 102.2236
1.004286 102.6617
0.994452 102.0922
1.004436 102.5451
1.007442 103.3082
0.991498 102.4299
0.987187 101.1175
0.999612 101.0782
1.000303 101.1089
0.996936 100.7991
1.007102 101.515
1.006761 102.2013
1.000399 102.2421
1.002265 102.4737
1.00581 103.069
1.002526 103.3294
0.988332 102.1238
1.000256
102.15
1.00794 102.961
0.989439 101.8736
0.988999 100.7529
1.000052 100.7581
0.987918 99.54076
1.002999 99.83927
1.013511 101.1882

Random
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
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29
30
31
32
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34
35
36

0.921699
0.475441
0.518212
0.183988
0.171804
0.174749
0.13528
0.339205
0.928547
0.840258
0.831799
0.988093
0.710624
0.227707
0.717367
0.834076
0.127145
0.043041
0.475325
0.511798
0.338547
0.822705
0.810812
0.516881
0.613621
0.775122
0.626766
0.059015
0.50933
0.849827
0.078529
0.070256
0.498541
0.052775
0.650114
0.961212

NormsInv
1.416596
-0.0616
0.045668
-0.900272
-0.947059
-0.935562
-1.101776
-0.414635
1.465056
0.995519
0.9613
2.260112
0.555208
-0.74642
0.575038
0.970398
-1.13999
-1.716437
-0.061891
0.029578
-0.416432
0.925724
0.880891
0.042326
0.288769
0.755823
0.323299
-1.563093
0.02339
1.03569
-1.415037
-1.473884
-0.003657
-1.618525
0.385629
1.764929

37
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68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83

0.902505
0.854451
0.156712
0.678951
0.936206
0.074052
0.893762
0.388634
0.608993
0.622489
0.086771
0.815874
0.8622
0.300172
0.94383
0.233414
0.284151
0.079236
0.086911
0.379716
0.342765
0.703518
0.409973
0.067686
0.708772
0.16354
0.801229
0.42132
0.586074
0.039252
0.618858
0.067039
0.106801
0.439032
0.498805
0.318376
0.331975
0.986367
0.819312
0.723606
0.684387
0.684242
0.882698
0.975941
0.234875
0.044769
0.668551

1.295959
1.055716
-1.008065
0.464767
1.523685
-1.446263
1.246788
-0.282881
0.276696
0.312024
-1.360913
0.899752
1.090255
-0.523905
1.587765
-0.727649
-0.570553
-1.410233
-1.360025
-0.306228
-0.404929
0.534546
-0.227614
-1.493249
0.549801
-0.980011
0.84602
-0.198518
0.217458
-1.759428
0.302483
-1.498213
-1.243724
-0.153425
-0.002997
-0.472246
-0.434466
2.207701
0.912746
0.593587
0.480001
0.479594
1.188581
1.976331
-0.722887
-1.69784
0.435916

1.009925
1.008092
0.992487
1.003599
1.011665
0.989205
1.00955
0.997943
1.002173
1.002441
0.989844
1.006905
1.008356
0.996127
1.012155
0.994594
0.995775
0.989475
0.98985
0.997767
0.997023
1.004129
0.99836
0.988854
1.004244
0.992698
1.006496
0.99858
1.001725
0.986866
1.002369
0.988817
0.990721
0.99892
1.000057
0.996516
0.9968
1.016909
1.007003
1.004577
1.003715
1.003712
1.009105
1.015132
0.994629
0.987326
1.00338

102.1925
103.0195
102.2456
102.6136
103.8105
102.6899
103.6706
103.4573
103.6822
103.9353
102.8797
103.59
104.4556
104.051
105.3157
104.7463
104.3038
103.206
102.1585
101.9304
101.6269
102.0465
101.8791
100.7436
101.1712
100.4325
101.0848
100.9413
101.1154
99.78734
100.0237
98.90514
97.9874
97.88159
97.88714
97.54606
97.23394
98.8781
99.5706
100.0263
100.3979
100.7705
101.6881
103.2269
102.6725
101.3712
101.7139

84
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114
115
116
117
118
119
120
121
122
123
124
125
126
127
128
129
130

0.566493
0.955707
0.181535
0.149824
0.689612
0.266308
0.246069
0.04607
0.760592
0.192242
0.146545
0.373993
0.145845
0.903466
0.398483
0.681832
0.145023
0.477952
0.442755
0.88607
0.946898
0.127892
0.882179
0.485512
0.138215
0.830108
0.675142
0.726755
0.441993
0.314349
0.038036
0.986282
0.026734
0.082247
0.077842
0.901446
0.758095
0.637289
0.048054
0.07028
0.769921
0.101493
0.503759
0.432748
0.996819
0.394919
0.268909

0.167452
1.702908
-0.909529
-1.037187
0.494752
-0.624019
-0.686912
-1.684212
0.708208
-0.869663
-1.051369
-0.321296
-1.054423
1.301554
-0.257276
0.472828
-1.058023
-0.055295
-0.143987
1.205889
1.615489
-1.136413
1.185949
-0.036323
-1.088375
0.954592
0.454156
0.603029
-0.145917
-0.483561
-1.773943
2.205264
-1.931122
-1.390116
-1.419736
1.289835
0.700187
0.351222
-1.664024
-1.473707
0.738586
-1.273093
0.009423
-0.169381
2.728471
-0.266522
-0.616117

1.001346
1.013036
0.993227
0.992269
1.003827
0.995373
0.9949
0.987428
1.005448
0.993526
0.992163
0.997653
0.99214
1.009968
0.998136
1.00366
0.992113
0.999661
0.998991
1.009237
1.012367
0.991525
1.009085
0.999805
0.991885
1.007322
1.003519
1.004649
0.998977
0.99643
0.986758
1.016891
0.985586
0.989625
0.989404
1.009878
1.005387
1.002738
0.987578
0.989
1.005679
0.990501
1.000151
0.9988
1.02092
0.998067
0.995432

101.8508
103.1785
102.4797
101.6874
102.0766
101.6042
101.086
99.81516
100.3589
99.70923
98.92778
98.69563
97.91985
98.89587
98.71156
99.07287
98.29146
98.25818
98.15908
99.06582
100.291
99.44102
100.3445
100.3249
99.51076
100.2394
100.5921
101.0597
100.9563
100.5959
99.26385
100.9405
99.48556
98.45342
97.41018
98.3724
98.90231
99.17311
97.94122
96.86388
97.41393
96.4886
96.50313
96.3873
98.40377
98.21351
97.76491

131
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161
162
163
164
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166
167
168
169
170
171
172
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175
176
177

0.256365
0.67607
0.79851
0.06745
0.248797
0.091695
0.222174
0.534675
0.683515
0.384773
0.413123
0.104806
0.557859
0.484584
0.252393
0.559732
0.671578
0.353759
0.007031
0.671307
0.972995
0.418983
0.123314
0.704782
0.385707
0.605713
0.954473
0.20147
0.013315
0.491348
0.155942
0.870653
0.745053
0.840545
0.136775
0.41027
0.492123
0.472831
0.086703
0.738315
0.811166
0.493309
0.301961
0.346296
0.100746
0.204992
0.768276

-0.654591
0.456739
0.836312
-1.495056
-0.678281
-1.330388
-0.764871
0.087026
0.477551
-0.292968
-0.21952
-1.254631
0.145542
-0.038652
-0.666977
0.150291
0.444274
-0.375191
-2.455655
0.443526
1.926751
-0.204497
-1.158577
0.538204
-0.290527
0.268164
1.689869
-0.836381
-2.216889
-0.021689
-1.011278
1.129483
0.659002
0.996701
-1.094925
-0.22685
-0.019745
-0.068156
-1.36134
0.638159
0.882203
-0.016774
-0.518769
-0.395341
-1.277313
-0.823921
0.733181

0.995143
1.003538
1.006422
0.988841
0.994965
0.990072
0.994314
1.000737
1.003696
0.997867
0.998421
0.990639
1.00118
0.999787
0.99505
1.001216
1.003444
0.997247
0.981686
1.003438
1.014752
0.998535
0.991359
1.004156
0.997885
1.002109
1.012937
0.993776
0.98346
0.999915
0.992463
1.008655
1.005074
1.007643
0.991836
0.998366
0.99993
0.999564
0.989841
1.004915
1.006771
0.999953
0.996165
0.997095
0.990469
0.99387
1.005638

97.29006
97.6343
98.26129
97.16474
96.6755
95.71572
95.17145
95.24164
95.59367
95.38977
95.23916
94.34766
94.45902
94.43892
93.97142
94.08571
94.40971
94.1498
92.42555
92.74331
94.11146
93.97355
93.16151
93.54873
93.35092
93.54777
94.75795
94.16821
92.61063
92.6028
91.90488
92.70029
93.17063
93.88272
93.11626
92.96409
92.9576
92.91709
91.97311
92.42519
93.051
93.04659
92.68978
92.42052
91.53971
90.97857
91.49146

178
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204
205
206
207
208
209
210
211
212
213
214
215
216
217
218
219
220
221
222
223
224

0.7114
0.898089
0.474902
0.833609
0.487488
0.91015
0.359474
0.199671
0.904477
0.616346
0.62348
0.584291
0.661608
0.9732
0.51146
0.839626
0.084103
0.129715
0.090489
0.017376
0.076629
0.33469
0.362027
0.774175
0.583402
0.054996
0.535495
0.806326
0.599415
0.762107
0.812621
0.407467
0.440319
0.555617
0.356236
0.607671
0.121804
0.862445
0.06482
0.599043
0.765798
0.10702
0.083537
0.80567
0.559057
0.002856
0.194922

0.557481
1.270737
-0.062952
0.968523
-0.031367
1.341678
-0.359865
-0.842796
1.30749
0.295898
0.314634
0.212883
0.416857
1.930055
0.028731
0.992923
-1.377988
-1.127741
-1.337749
-2.11124
-1.428118
-0.427
-0.353046
0.752667
0.210604
-1.59823
0.089091
0.864438
0.251834
0.713098
0.887596
-0.234066
-0.150159
0.139865
-0.368538
0.273253
-1.166014
1.091369
-1.515525
0.250872
0.725078
-1.242532
-1.381665
0.86205
0.14858
-2.763848
-0.8599

1.004303
1.009732
0.999604
1.007428
0.999842
1.010274
0.997363
0.993728
1.010013
1.002319
1.002461
1.00169
1.003236
1.014777
1.000297
1.007614
0.989716
0.99159
0.990017
0.984245
0.989341
0.996856
0.997414
1.005786
1.001673
0.98807
1.000753
1.006636
1.001985
1.005485
1.006812
0.998311
0.998945
1.001137
0.997297
1.002147
0.991303
1.008364
0.988688
1.001978
1.005576
0.99073
0.989688
1.006618
1.001203
0.979402
0.9936

91.88513
92.77938
92.7426
93.43151
93.41677
94.37652
94.12761
93.53726
94.47383
94.6929
94.92592
95.08635
95.39402
96.80369
96.8324
97.56968
96.56628
95.75416
94.79825
93.30473
92.3102
92.02002
91.78205
92.31307
92.46749
91.36432
91.43313
92.03986
92.22256
92.72839
93.36006
93.20242
93.10407
93.20996
92.95803
93.15763
92.34745
93.11986
92.06645
92.24853
92.7629
91.90298
90.95532
91.55723
91.6674
89.77921
89.2046

225
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232
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234
235
236
237
238
239
240
241
242
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244
245
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247
248
249
250
251
252

0.706126
0.362498
0.003943
0.582349
0.175463
0.084929
0.083031
0.581752
0.738418
0.815154
0.912666
0.591323
0.258997
0.855611
0.719819
0.290406
0.036402
0.69823
0.196231
0.932884
0.541802
0.545136
0.375986
0.658233
0.16461
0.069314
0.816017
0.105481

0.542102
-0.35179
-2.656943
0.207906
-0.932794
-1.372661
-1.38497
0.206378
0.638477
0.897049
1.357356
0.230949
-0.646442
1.060806
0.582304
-0.552199
-1.794063
0.519317
-0.85516
1.497621
0.104975
0.11338
-0.316039
0.407645
-0.975688
-1.480918
0.90029
-1.250926

1.004186
0.997423
0.980194
1.001652
0.993052
0.989756
0.989664
1.001641
1.004918
1.006884
1.010394
1.001827
0.995204
1.008131
1.004491
0.995914
0.986608
1.004013
0.993635
1.011466
1.000873
1.000937
0.997693
1.003166
0.99273
0.988946
1.006909
0.990667

89.57801
89.3472
87.57755
87.72226
87.1128
86.2204
85.32921
85.46921
85.88954
86.4808
87.37965
87.53928
87.11947
87.82785
88.2223
87.86178
86.68514
87.03301
86.47907
87.4706
87.54699
87.62901
87.42685
87.70363
87.06606
86.10366
86.69852
85.88937

he standard normal cumulative distribution

td Dev = 1

1.87
0.0025
0.004675
0.995325
1009.36
1004.641