In: Finance
Value at Risk has been a tool of choice for many risk managers over the years. It provided a tool to price loan risk. Given the current financial situation, the global markets are facing, is this still a good idea to continue pricing risk
Value at risk (VaR) is a statistic that measures and quantifies the
level of financial risk within a
firm, portfolio or position over a specific time frame.
Risk managers use VaR to measure and control the level of risk
exposure. One can apply VaR
calculations to specifi positions or whole portfolios or to measure
firm-wide risk exposure.
This metric is most commonly used by investment and commercial bank
to determine
the extent and occurrence ratio of potential losses in their
institutional portfolios.
VaR modeling determines the potential for loss in the entity being
assessed and the probability of
occurrence for the defined loss. Probability of occurrence for the
amount of loss, and the
One measures VaR by assessing the amount of potential loss,
the
the probability of occurrence for the amount of loss, and the
timeframe.
For example, a financial firm may determine an asset has a 8%
one-month VaR of 3%,
representing a conversion of the 8% chance of occurrence to a daily
ratio places the odds
of a 3% loss at one day per month.
The related tail risk metric Conditional VaR (CVaR) was largely
expected due to the COVID-19 pandemic,
The article states how best to deal with this volatility and cover
model parameters,
calibration and validation as well as VaR calculation and VaR
explain.
But the magnitude of the increase for some markets has been beyond
expectation.
And can,t deals in fully with the VAR calculation in the current
COIVD 19 situation.
In this article we look at how best to deal with this volatility
and cover model parameters
So separate analysis will plan for each country on the basis of the
COVID
Sutitable measures are taken to make compete the country aganist
the risk.
So we look at how best to deal with this volatility and cover
model parameters, new
calibration and validation as well as VaR calculation and VaR
explain are necessary under this situation.
Beyond the model setup itself, transparency into the current VaR
and its change over time is critical.
‘VaR explain’ type analysis deconstructs a change in VaR into the components of changes in positions, assets voltality and correlt between
assets