Measurement of Value at Risk (VaR) in Stock Investment Using Monte Carlo Simulation Method

Abstract

The finance industry, especially banking, is an industry that is often used by the public to make transactions. Banking is one of several business lines in the financial industry. Many industries in Indonesia are under pressure because of the Covid-19 pandemic, many cases have been confirmed by new policies stating that large social scale (PSBB). This policy affects many industries and one of them is banking. PT. East Java Regional Development Bank Tbk is one of the regional banks in Indonesia that provides credit to the community and small SME's (Small, and Medium Enterprises) in the regions, credit activity is very important for the banking industry because the activity generates cash flow. Stock investors investing in Bank Jatim will make decisions because of this pandemic to continue to generate returns in their investment portfolios. This study tries to measure the risk of investing in shares at PT. East Java Regional Development Bank Tbk for the past year using the Value at Risk method using Monte Carlo. The Value at Risk method is used to measure the maximum risk of loss in a company's stock performance. In the Monte Carlo method, random numbers are generated with a normal distribution, which is then carried out by calculating the Value on Risk using the results from random number generation. From the results of risk measurement using Value at Risk, the numbers are-5871809.812 at the 99% confidence level,-4183103.967 at the 95% confidence level, and-3195086.406 at the 90% confidence level where this can be seen that investors will experience a maximum loss of 6% with 99% confidence, 4% with 95% confidence, and 3% with confidence in the amount of 90% of the total initial investment fund in BJTM shares amounting to IDR 5,871,809,812, IDR 4,183,103,967, and IDR 3,195,086,406. From these results, this can be ignored that the level of confidence is directly proportional to the risk because the higher the level of trust used, the higher the probability of losses that can increase investors.