THE INFLUENCE OF CONFIDENCE LEVEL, CORRELATION AND VOLATILITY ON VALUE AT RISK. SIX CASE STUDIES

Studies show that hedge funds and other financial institutions often apply the standard deviation as a risk measure. Even if one looks at hedge fund internet pages with investment results data for investors, they usually present them with standard deviations and Sharpe indicators, neglecting the fact that their investment assets are not always normally distributed, as well as such important measures as for example kurtosis and skewness. The author estimates the correlation and volatility for selected investment assets and verifies assumptions of popular risk models concerning these parameters. The impact of the confidence level, correlation and volatility on Value at Risk is analyzed.