What is Value at Risk (VaR) in banking?
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What is Value at Risk (VaR) in banking?
Value at Risk (VaR) is a risk management tool that quantifies the potential loss in value of a portfolio over a defined period for a given confidence interval.
How is VaR calculated?
VaR can be calculated using different methods, including the historical method, variance-covariance method, and Monte Carlo simulation.
What are the limitations of using VaR?
Some limitations of VaR include its inability to predict extreme market events, reliance on historical data, and the assumption of normal market conditions.
Can VaR be used for all types of assets?
While VaR can be applied to various asset classes, its effectiveness may vary depending on the asset's characteristics and market conditions.
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