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In: Finance

Value at Risk has been a tool of choice for many risk managers over the years....

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

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Expert Solution


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


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