“We’re seeing a growing number of hedge fund managers look at stress testing, in addition to VaR [value at risk], as part of their risk management,” says Lance Smith, CEO of Imagine Software, a software developer for investment management solutions. “The limitations of VaR have become more obvious in the light of some extreme market events such as [hedge fund] Amaranth’s blow-up.”
Smith continues: “VaR looks at historical correlation of risk factors, which is essentially a type of average.
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