Abstract
Risk management consists of quantifying and analyzing the potential losses and gains for any investment, and then deciding to invest or not, and taking some appropriate actions according to the risks to be taken, the investor's objectives and the risk tolerance. Basically, there are two steps in risk management: First, determine what the existing risks of a given investment are, and then handling these risks in a manner that best fits to the objectives of the potential investment. Risk management is omnipresent worldwide, and it is important to understand what are the different tools that can be used to help investors make their decisions. There are three main aspects in risk management: Measurement of the risk, depending on the interests, maturity etc, Monitoring, that is to say, be careful of all information and details for trading, Management, which basically involves having good strategies and trains the risk takers in order to avoid losses. 'Value at Risk' is a technique used to measure the worst expected losses under normal market conditions for a certain period of time and at a given confidence level. It's also based on the statistical analysis of historical price trends and volatilities. Generally speaking, 'value at risk' is more used by banks and security firms to measure the market risk of their potential investment. This method allows also companies to measure risks when it happens and gives useful information when companies trade or make decisions. Basically, 'value at risk' answers the question 'how much can I loose with X% of probability over a given period of time?'
