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Risk measures [27]

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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 as value declines 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. Ignores impact of size of loss beyond VaR (and who bears this loss)

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