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Measuring and managing market, credit and Op risk [14]

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Bullet points include: Advantages Definition transparent and may be grasped with little knowledge of statistics Closely linked to capital and loss probabilities Disadvantages A static risk measure. If firm can trade out of risky position then VaR may overstate ‘true’ risk Ability to trade linked to liquidity Loss distributions may be far from elliptic, so diversification may lead to strange results, see also Appendix A Ignores impact of size of loss beyond VaR (and who bears this loss)

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