Value-at-Risk

Nov 29, 2023 - Rotterdam, The Netherlands

Article banner Image Value at Risk

Value-at-Risk (VaR) is a widely used risk management tool in finance that provides an estimate of the maximum potential loss an investment portfolio or trading position could incur over a specified time horizon at a given confidence level.

The confidence level represents the probability that the actual losses will not exceed the estimated Value-at-Risk. For example, a 95% VaR implies that there is a 5% chance that losses could exceed the estimated value.

Value-at-Risk is a critical tool in the commodity industry that provides a quantitative assessment of potential losses, helping users manage risk, make informed investment decisions, and allocate capital efficiently in a volatile market environment. It plays a crucial role in risk management and regulatory compliance within the industry.


Most appreciated advantages of Value-at-Risk

  • Quantitative = Objective: VaR provides a quantitative measure of risk, which makes it easy to communicate and compare risk levels across different assets or portfolios. This allows for more objective risk assessment and data-driven decision-making
  • Risk Aggregation: VaR can be used to aggregate risk across various asset classes and portfolios, providing a holistic view of risk exposure for an entire organization. This is crucial for businesses with diverse risk drivers such as different commodities, logistics, FX, and others
  • Portfolio Optimization: VaR can be integrated into portfolio optimization techniques, including hedge effectiveness. It aids in constructing portfolios that meet specific risk tolerance levels
  • Risk Communication: VaR is a valuable tool for communicating risk to both internal stakeholders (senior management, board of directors) and external parties (investors, regulators). It helps stakeholders make informed decisions about risk exposure

Article Image Value at Risk

Key components of Value-at-Risk

  • Ability to ingest from a multitude of data sources in various formats, both internal and external.
  • Handling all data regarding security, quality and normalization.
  • Support for 4 models:
    • Parametric Equally Weighted
    • Parametric EWMA
    • Monte Carlo EWMA
    • Historical
  • On Monte Carlo, support for Options VaR
  • Support for multiple VaR calculations
  • Configure each VaR calculation with different parameters for model, lambda, confidence, etc.
  • Calculate diversification across books and products.
  • Pre-calculate VaR driver – position, price and CoVaR changes
  • Automatic generation of VaR portfolios
  • Calculation of Expected Short-Fall
  • Support for absolute or relative returns
  • Drill down across portfolio and to individual positions
  • Early warning of large price variations
  • VaR Checker allows recalculation of VaR in Excel
  • Directly access VaR calculated data using out-the-box API
Image Icon Black Riusk Managment Article
Why RadarRadar Value-at-Risk?
  • Integration with Exposure Model: RadarRadar VaR is built on top RR Position & Performance engine, providing perfect integration of exposure modeling, PCAT and valuation engine
  • Enough with copy/pasting: RR VaR built-in data quality checks and integration with position and PCAT eliminates the needs for error-prone excel pre-treatment of the data
  • Drill-down, up, and sideways: Integration also means full data navigation capabilities, navigating from VaR numbers not only to sub-portfolios/diversification, but also trade/lot position details and/or return decomposition into futures, basis, differentials, etc.
  • Built for commodities: RR offer a set of industry-tested VaR models with out-of-box parametrization options to match trading-strategies
What do our clients say?
Roquette 2
Substantial margin improvement

Industry’s first automated collaborative data management platform with sophisticated margin management tools.

Read full case
Have a question?

Feel free to contact us at info@radarradar.com