Quantifying financial risk - part 1

In this lesson

1. 0:00 Introduction to quantifying financial risk
2. 0:56 Understanding value at risk and normal distributions
3. 2:41 Value at risk formula and components
4. 3:45 Reading normal distribution tables
5. 4:57 Six-step VaR calculation technique
6. 7:12 Calculating standard deviation for the formula

About this lesson

You'll discover the practical four-step method to find the confidence interval value from normal distribution tables and calculate standard deviation, then combine these into the VaR formula. This skill is essential for papers covering risk management and financial strategy, helping you move from identifying risks to actually measuring their potential impact on your business. By the end, you'll have a straightforward, repeatable technique that transforms complex probability concepts into exam-ready calculations. The session starts by explaining why quantifying risk matters: if you can put a number on your exposure, you can decide whether to actively manage it or accept it. You'll explore how the normal distribution curve works and why it underpins VaR calculations, then work through the practical methodology step by step. The approach strips away the mathematics jargon and gives you a simple six-step process: identify the probability from the question, adjust it to focus on downside risk, read the Z score from the exam tables, calculate the standard deviation from scenario data, and plug both numbers into the formula. With worked examples showing how to navigate the tables and handle the calculations, this foundation prepares you to tackle more complex risk scenarios in your qualification.

Duration: 8m