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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.

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Course Summary

var menuvar what it tells youvar and volatility

var and confidence intervalvar and timevar and diversification

  • 50 minutes
  • 13 question multiple choice test
  • 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

Value at Risk (VAR) - the details

1. What VAR is

  • What VAR tells you
  • Why you need to be careful

2. How VAR works

  • Volatility, what it is and how it describes risk, example
  • Standard deviation, what it is and how it used, example
  • Confidence intervals, example
  • How much money you can lose, example
  • Not a guaranteed maximum

3. Volatility and time

  • How VAR responds to increasing volatility, example
  • What this means for dealers
  • How time affects VAR, holding periods and their assumptions, example
  • 10 days and 99%, why often is often used

4. Diversification

  • What it is and how it is measured (correlation), example
  • Undiversified and diversified VAR, what they are
  • How correlations affect diversified VAR, examples
  • Undiversified and diversified VAR, when they are used

5. The strengths and weaknesses of VAR

  • Simplicity
  • An improved risk measure
  • Adding VARs
  • Diversification
  • Normal market assumption
  • Options
  • Failure to capture non market risks
  • Why VAR is still used

6. Regulators and VAR

  • Backtesting
  • VAR Assumptions
  • Additional risk reporting

7. Summary

8. Test

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