6.2

VALUE AT RISK

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Purpose

This chapter is an overview of an important part of risk management—how to create a meaningful, high-level summary of trading risk without going into a lot of detail. Value at risk (VAR) is a very popular statistic used to summarize risk across a variety of instruments.

Summary

VAR is a risk management statistic that describes the size of an investment. Knowing the size of investments allows risk managers to set limits on the size of positions that traders can amass. To describe the size of investments, VAR examines likely daily (or weekly) profit and loss (P&L) on an investment. While risk management practices vary ...

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