Value-at-Risk for commodity portfolios

Calculate Risk Metrics

Value-at-Risk (VaR) is a generally applied concept to express the market risk on a position or portfolio of positions. The VaR measures by how much the market value of the position may change over a given horizon. Furthermore, the VaR is the amount that will not be exceeded with a certain confidence level. Commonly used horizons are between 1 day and 1 month. Commonly used confidence levels are 95 and 99%. For example, a 10-day 95% VaR of 1 mln EUR means that the drop in market value over a 10-day period (for the current portfolio) will not be more than 1 mln EUR in 95% of the cases. This also implies that there is a 5% probability that the loss in market value exceeds the 1 mln EUR, and then even be equal to 2 or 3 mln EUR.

KYOS VaR engine performs the following tasks:

• Read and merge all positions, historical prices, and other relevant info in a robust, consistent way.
• Translate all prices into a common currency.
• Calculate historical volatility and correlation for the products with a number of user-defined settings and choice of methodology.
• Calculate the Value-at-Risk on the selected portfolio(s).

VaR methods

KyVar applies the parametric (‘Normal’) method and Monte Carlo method.

VaR for multiple commodities

We implented VaR engines for:

• Energy portfolios (power/gas/coal/oils/CO₂)
• FX portfolios
• Grain portfolios
• Cocoa portfolios
• Freight portfolios

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