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VAR - That's done

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Published: 5th April 2017 by William Webster

Measuring and reporting market risk takes resources. Particularly when systems are purchased. Data needs uploading. Policy need to reflect changes. Reports are developed. Limits are approved. Simple explanations are required. It all takes time and a little help can make a big difference.

The Background

This client, a commodity dealer, used standard market risk measures but wanted to enhance things with VAR. Adding VAR sounded simple but time and resources were of the essence. Getting things done and making sense of the results needed a little outside help.

The Risk

Risk management fails to implement VAR properly. This can mean a project over run or something subtler. Problems can result from failed methodology, misinterpreting results, misunderstanding what VAR can (and cannot) achieve and explaining this to the Board. Any one of these puts the credibility of the project at stake.

This was Barbican Consulting’s solution

The Proposal

A two-stage process.

First, a desktop exercise to review what had been undertaken. Where appropriate making recommendations concerning alterations and improvements.

Second, an on-site visit, following up and identifying with the risk manager, the outstanding issues. Then recommending how best to deal with these. The result to be a robust fully documented process.

The outcome

The client proceeded with this. The benefits were clear. It provided the risk manager with an independent assessment of the processes and assumptions that had been made. It identified weaknesses under stressed conditions and recommended improvements. It also helped explain to senior management what VAR was about. All of this was undertaken within the client’s timeframe and facilitated timely delivery of the project.

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Learn about the following: What VAR is. An introduction to how VAR works. The influence of volatility, time and confidence on VAR. The difference between diversified and undiversified VAR. The strengths and weaknesses of VAR. How regulators see VAR.