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How Does the Concept of “Value at Risk” (VaR) Influence Margin Setting?

Value at Risk (VaR) is a statistical measure used to estimate the maximum potential loss over a specific time horizon with a given confidence level. Derivatives exchanges use VaR models to set margin requirements.

Higher VaR indicates higher potential loss, leading the exchange to demand a higher margin to cover that estimated risk exposure.

How Is ‘Value at Risk’ (VaR) Used in Calculating Margin Requirements?
How Does the Concept of “Value at Risk (VaR)” Relate to Setting Margin Levels?
How Does the Net Premium Affect the Maximum Loss Amount?
How Is Value at Risk (VaR) Used in Setting Position Limits?