Value-at-Risk (VaR) estimates the downside risk of a portfolio of market-priced assets at a particular confidence level over a specified time horizon. This article is a tutorial that introduces purchasing managers to the concept of VaR and its potential applications in the purchasing process. It discusses estimation alternatives and issues, and then examines and highlights the role of VaR in the context of a commodity end user with a specific example for a foodservice business. Further, the practical implementation issues of VaR in a corporate environment in general and the purchasing function in particular are discussed. The example and discussions are widely applicable to any commodity end user (e.g., energies, metals, or food-related commodities), providing potential applications to practitioners and research ideas to academics.
|Original language||English (US)|
|Number of pages||8|
|Journal||Journal of Supply Chain Management|
|State||Published - Mar 2002|
ASJC Scopus subject areas
- Management Information Systems
- Economics, Econometrics and Finance (miscellaneous)