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VALUE AT RISK
What does Value at Risk (VaR) measure in risk management?
VaR measures the maximum potential loss in the value of a portfolio over a defined period for a given confidence interval. It quantifies market risk by estimating the worst expected loss under normal market conditions.
What does the term 'loss distribution' refer to in VaR analysis?
Statistical distribution of potential portfolio losses over a time horizon
What are the three key parameters that define a VaR estimate?
The three key parameters are the confidence level (e.g., 99%), the holding period or time horizon (e.g., 1 day or 10 days), and the amount of loss expressed in monetary terms or percentage.
What is parametric VaR and how does it differ from non-parametric VaR?
Parametric VaR assumes a distribution; non-parametric uses actual historical data
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