What is the risk value?
It is used as a market risk measurement by several different types of financial institutions, the value of the risk involves the maximum amount of loss, which is expected to be expected to be a given investment opportunity. The risk value is calculated using three basic components or parameters, all of which are considered to be solid economic indicators. Determination of risk value is common practice and is often used as part of the process of predicting the worst scenario, which is expected to be provided with a given time period.
Three parameters factors form the basis for risk or var. The first factor has to do with the time period that the financial institution is obliged to adhere to safety. This factor, sometimes referred to as a time horizon, helps set the time frame for projection. The time horizon can range from one twenty -four hours, for ten days, or up to one calendar year. The preferred time horizon will often depend on the type of financial institution whoErá uses this strategy. For example, creditors may decide to have an endangered value based on a period of one year, as this will help the creditor determine the potential risk of extending the investor's loan.
The second factor in determining the risk value is the level of reliability. In principle, the level of reliability is time in the time horizon, which is not expected to achieve security and exceed the maximum loss. The relatively high level of trust suggests that the volatility of the investment is somewhat limited and there are adequate expectations of stable growth. The level of reliability will usually not directly address trends on the market, although this factor is counted in the overall process.
The third parameter or basic factor of FPEBO when the risk value is related to the settling on the currency unit to be used in the calculation. This may seem like a relatively unimportant factor. Currency selection isHowever, very important for understanding and projection of safety performance for the quoted period. Volatibility, along with standard or expected deviations from projection and expected and unexpected shortcomings, are directly affected by changes in the currency performance in the open market. Therefore, it is desirable to use a currency that is expected to be relatively stable for the duration of the time horizon.
The point of risk value returns to the investment portfolio. Investment is a process that is expected to generate revenue more often than the creation of loss. The correct calculation of the risk value can help lead to lower portfolio losses and help the portfolio to realize a greater return.