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.
Glossar
VaR Calculation
Calculation ⎊ VaR Calculation, or Value at Risk Calculation, is a standard quantitative finance procedure used to estimate the maximum potential loss a portfolio of cryptocurrency derivatives could incur over a specified time horizon at a given confidence level.
Maximum Potential Loss
Exposure ⎊ Maximum Potential Loss (MPL) within cryptocurrency, options trading, and financial derivatives represents the theoretical worst-case financial detriment an investor could incur from a specific position or portfolio.
VAR Model
Model ⎊ The Value at Risk (VAR) model, within the context of cryptocurrency, options trading, and financial derivatives, represents a statistical measure quantifying potential losses in a portfolio or position over a specific time horizon and confidence level.
VaR
Measurement ⎊ Value at Risk, within cryptocurrency derivatives, quantifies potential losses in a portfolio over a defined time horizon and confidence level, representing a crucial risk management tool for volatile digital assets.