Absolute vs Relative VaR
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1. Context
In this swatch, we differentiate between Absolute and Relative Value-at-Risk (VaR). The opening readings of Market Risk work with the absolute VaR, while the readings that we encounter in Investment and Risk Management switch to the relative VaR. The distinction is important both from the perspective of which VaR is being alluded to depending on risk type (Market, Credit or Operational), and from the perspective of questions posed in the exam. The details of the reading in which this topic appears are given below:
| Area | Market Risk Measurement and Management |
| Reading | Estimating Market Risk Measures |
| Reference | Kevin Dow, Chapter 3. Estimating Market Risk Measures: An Introduction and Overview In Measuring Market Risk, 2nd Edition, (West Sussex, England: John Wiley & Sons, 2005). |