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VaR based risk adjusted measures

  • VaR states the maximum loss that the asset can sustain given a stated confidence level and
  • time period
  • By modifying the Sharpe Ratio, risk-return performance based on VaR can be analyze 

VaRP   = Portfolio VaR
VP   = Initial Portfolio Value


​VaR can also be used for investment decision making process. If the fund manager wants to add a new security in the portfolio, then the new VaR of the portfolio will be compared with the VaR of the portfolio before adding the security. Change in the VaR of the portfolio from the addition of the new security is known as Incremental VaR

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