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Anybody can do it - financial modelling

This project seeks to teach students, teachers, researchers and industry practitioners how to build parametric and nonparametric Value at Risk (VaR) models, using innovative Excel techniques.

Research questions

  • To construct Value at Risk Models in an inexpensive and flexible way using Excel.
  • To provide teachers with readily useable classroom teaching studies for financial modelling students.   

Research methods

Value at Risk (VaR) is a widely used method by banks and investors for measuring market risk. Commercially purchased modelling packages can be expensive and inflexible, which restricts their use by teachers and researchers. This project provides step by step teaching studies on how to use Excel to construct VaR spreadsheets for individual assets as well as portfolios. This benefits financial modelling teachers by providing them with easy to use teaching studies on how to model VaR, and benefits researchers and industry practitioners by showing them how to easily construct VaR models.

To date two studies have been undertaken. The first is a nonparametric teaching study which uses two nonparametric methods: the historical simulation method and the historical bootstrap method. The study includes details of constructing VaR histograms. The second is a parametric teaching study using a parametric normal distribution approach and Monte Carlo simulation, including the incorporation of a self-contended pseudo-random number generator.

Study publications can be downloaded from the Australasian Accounting, Business and Finance Journal website.

Researchers

Timeline

This project commenced January 2012 and is ongoing.

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