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Aluminum has a more random affect on the stocks, affecting mostly airlines and oil service companies as they are more dependent on aluminum price for their equipment.
However, these conditions are seldom fulfilled in the markets.
In practice, the robustness of value at risk makes it the more suitable option for banking regulation.
After the unsuccessful revision of the regulative market risk framework, which was initiated after the financial crisis of 2007-2008, Basel Committee proposed switching the market risk measure from value at risk to expected shortfall.
The objective of this thesis is to compare the two different risk measures, value at risk and expected shortfall, with each other.
Value at risk (Va R) is a statistic that measures and quantifies the level of financial risk within a firm, portfolio or position over a specific time frame.
This metric is most commonly used by investment and commercial banks to determine the extent and occurrence ratio of potential losses in their institutional portfolios.
As a result, the underestimations of occurrence and risk magnitude left institutions unable to cover billions of dollars in losses as subprime mortgage values collapsed.
Value at risk has become the standard risk measure of financial institutions during the past twenty years.
Using a firm-wide Va R assessment allows for the determination of the cumulative risks from aggregated positions held by different trading desks and departments within the institution.
Using the data provided by Va R modeling, financial institutions can determine whether they have sufficient capital reserves in place to cover losses or whether higher-than-acceptable risks require them to reduce concentrated holdings.