Simulation of Risk Management Gaming Project in C++

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3 months ago

#include <iostream>
#include <iomanip>
#include <cmath>

// Function to calculate Value at Risk (VaR)
double calculateVaR(double meanReturn, double volatility, double confidenceLevel, double investmentAmount) {
    // Z-score for the given confidence level
    double zScore = 0.0;
    if (confidenceLevel == 0.95) {
        zScore = 1.645; // Approximate Z-score for 95% confidence level
    } else if (confidenceLevel == 0.99) {
        zScore = 2.33; // Approximate Z-score for 99% confidence level
    } else {
        std::cerr << "Confidence level must be 0.95 or 0.99.\n";
        return -1.0;
    }

    // Calculate Value at Risk (VaR)
    double VaR = investmentAmount * (meanReturn - zScore * volatility);
    return VaR;
}

int main() {
    double meanReturn, volatility, confidenceLevel, investmentAmount;

    std::cout << "Enter the expected mean return (as a decimal, e.g., 0.08 for 8%): ";
    std::cin >> meanReturn;
    std::cout << "Enter the annual volatility (standard deviation) of the investment: ";
    std::cin >> volatility;
    std::cout << "Enter the confidence level (0.95 or 0.99): ";
    std::cin >> confidenceLevel;
    std::cout << "Enter the investment amount: ";
    std::cin >> investmentAmount;

    double VaR = calculateVaR(meanReturn, volatility, confidenceLevel, investmentAmount);

    if (VaR != -1.0) {
        std::cout << std::fixed << std::setprecision(2);
        std::cout << "Value at Risk (VaR) for the investment: $" << VaR << "\n";
        std::cout << "This represents the potential loss at the " << (confidenceLevel * 100) << "% confidence level.\n";
    }

    return 0;
}

#include <iostream>

#include <iomanip>

#include <cmath>

// Function to calculate Value at Risk (VaR)

double calculateVaR(double meanReturn, double volatility, double confidenceLevel, double investmentAmount) {

// Z-score for the given confidence level

double zScore = 0.0;

if (confidenceLevel == 0.95) {

zScore = 1.645; // Approximate Z-score for 95% confidence level

} else if (confidenceLevel == 0.99) {

zScore = 2.33; // Approximate Z-score for 99% confidence level

} else {

std::cerr << "Confidence level must be 0.95 or 0.99.\n";

return -1.0;

}

// Calculate Value at Risk (VaR)

double VaR = investmentAmount * (meanReturn - zScore * volatility);

return VaR;

}

int main() {

double meanReturn, volatility, confidenceLevel, investmentAmount;

std::cout << "Enter the expected mean return (as a decimal, e.g., 0.08 for 8%): ";

std::cin >> meanReturn;

std::cout << "Enter the annual volatility (standard deviation) of the investment: ";

std::cin >> volatility;

std::cout << "Enter the confidence level (0.95 or 0.99): ";

std::cin >> confidenceLevel;

std::cout << "Enter the investment amount: ";

std::cin >> investmentAmount;

double VaR = calculateVaR(meanReturn, volatility, confidenceLevel, investmentAmount);

if (VaR != -1.0) {

std::cout << std::fixed << std::setprecision(2);

std::cout << "Value at Risk (VaR) for the investment: $" << VaR << "\n";

std::cout << "This represents the potential loss at the " << (confidenceLevel * 100) << "% confidence level.\n";

}

return 0;

}

Explanation

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.
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.

Explanation

Usage

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