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# MSc Project

Discussion in 'Risk Management' started by HMSc, Jun 12, 2009.

1. ### HMSc

Hi,

I'm a Masters student and I'm doing a project this summer involving commodity trading. What I hope to achieve is to develop a risk monitoring tool using VaR models in Excel (using the programming language VBA).

However, as I have no experience of trading in the stock market I'm not sure what would be beneficial for this tool to do. I don't want to spend three months working on something to find out that traders would never use it. So I would really appreciate it if people (traders) told me what they think would be useful for me to get this tool to do.

Also I am focusing on data from the precious metals market (namely gold, silver and platinum) so if anyone knows any useful sites I could use for information/data I would really appreciate it if you would let me know

Thanks

Most commodity traders use stops and a system with some success rate W. The probability that a commodity account will fall X% depends on 1-W and the average loser. For example, a fall of one average loser has probability (1-W). A fall of 2 average losers in a row has probability (1-W) X (1-W) and so on.

VaR is not a specific number but a system of evaluating risk. If you want to know the probability that a commodity position (account) will fall X% in 1 day then you must calculate the volatility of the commodity. ATR is a good measure for that. If ATR is 2% and the position can lose L amount due to such drop, then the probability of losing L amount in 1 day is 2%.

Traders have simplified things bankers and other bandits have made extremely complicated to confuse people. I do not think you will come up with something traders don't know but you may learn something for yourself.

http://www.encyclopedia.com/doc/1G1-18375011.html

3. ### moo

You can stick the VaR where the sun doesn't shine. The recent crisis should have proved to everyone its uselessness.

4. ### liujs

I did a crude VAR spreadsheet BEFORE I took a formal course on risk management years ago as a school project. Not much for a first or second year student back then. So it's based on historical returns only. Not any parametric distribution, e.g. student t distribution or normal. PM me for it, but do prepared for some disappointment.

5. ### sjfan

Can you explain what VaR is and how it's calculated? Didn't think so. Please, go on, resume ranting

7. ### Dobbes

There's also a lot of free VaR spreadsheets on the internet so you don't have to start at square one.

8. ### wutangfinancial

computing parametric VaR is very easy if you've taken a semester of stats and econometrics; it's not quantum physics. That's the problem. How do you calculate VaR so as to accurately estimate the risk of rare events?

9. ### sjfan

For equity, it's extremely easy. Your point is exactly right. I was addressing moo, who was clearly (and boorishly) talking about a concept he didn't understand.

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