Author: Anja Helk Value at risk (VAR), as an established measurement of market risk, is now revealing its virtues to credit risk management. VAR indicates the maximum likely loss over a specifIc period within a given confidence level, and is increasingly used as a tool for credit risk monitoring, to perform risk/return analysis of credit portfolios and for capital allocation decisions. Importantly, VAR measures economic capital, which is thought to replace the less flexible regulatory capital requirements that are currently in place.
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