Simulation of Risk Management Gaming Project in C++

Explanation

  1. Function calculateVaR(double meanReturn, double volatility, double confidenceLevel, double investmentAmount):
    • Purpose: Computes the Value at Risk (VaR) for an investment, which estimates the potential loss at a given confidence level.
    • Parameters:
      • meanReturn: Expected mean return of the investment (as a decimal).
      • volatility: Annual volatility (standard deviation) of the investment.
      • confidenceLevel: Confidence level for the VaR calculation (0.95 or 0.99).
      • investmentAmount: Amount invested.
    • Implementation:
      • Z-Score: A critical value from the standard normal distribution, used to determine the threshold for the confidence level. Approximate values are used for 95% and 99% confidence levels.
      • VaR Calculation: VaR = investmentAmount * (meanReturn - zScore * volatility). This formula estimates the potential loss.
  2. Main Function:
    • User Input: Collects input for mean return, volatility, confidence level, and investment amount.
    • VaR Calculation: Calls calculateVaR to compute the Value at Risk.
    • Result Display: Outputs the VaR with two decimal places of precision and explains the result in the context of the confidence level.

Usage

  • Risk Management Simulation: Provides a basic simulation for evaluating the risk of an investment based on historical volatility and expected return.
  • Financial Analysis: Useful for understanding potential losses and making informed investment decisions.

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