Applied risk management series: Active VAR management
How to actively manage the value-at-risk of energy derivatives
Over the past 20 years, value-at-risk has been gradually gaining acceptance as a key market risk control tool for trading portfolios. VAR is used to set market risk limits at various levels of the portfolio hierarchy, as well as to determine risk-adjusted performance.
From a risk control perspective, VAR is often treated as a binary variable. According to this line of thinking, as long as a trading book is below its VAR limit, then no action is required. However, once traders approach or exceed
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