Value at risk: Difference between revisions
imported>Doug Williamson (Removed link) |
imported>Doug Williamson (Add cash flow at risk and earnings at risk examples.) |
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It is sometimes written as 'Value at Risk'. | It is sometimes written as 'Value at Risk'. | ||
Value at risk concepts can be applied to any financial measure. | |||
Common examples include cash flow at risk and earnings at risk. | |||
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* [[Correlated value at risk]] | * [[Correlated value at risk]] | ||
* [[Delta-normal method]] | * [[Delta-normal method]] | ||
* [[Earnings at risk]] | |||
* [[Frequency distribution]] | * [[Frequency distribution]] | ||
* [[Historical simulation method]] | * [[Historical simulation method]] | ||
Revision as of 19:29, 3 September 2018
(VaR).
Value at risk quantifies risk by estimating a maximum likely adverse change, within a specified time period, with a specified level of confidence.
A common application is the maximum likely loss on a market position, before the position can be closed out.
VaR is expressed as an amount of money, for example €.
Example
If weekly VaR is assessed as €250,000 at a 95% level of confidence, it means we are 95% confident that cumulative net losses for any one week will not exceed €250,000.
So the probability that weekly losses will exceed €250,000 is 5%, according to the VaR assessment.
The specified time period is commonly the planned holding period, or else the time lag before the holder of the position could normally respond to close out their loss-making position.
Value at risk is sometimes abbreviated as 'VAR', rather than 'VaR'.
It is sometimes written as 'Value at Risk'.
Value at risk concepts can be applied to any financial measure.
Common examples include cash flow at risk and earnings at risk.
