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Financial advisory
RES5Financial Advisory Services✓A limitation of Value-at-Risk (VaR) as a risk measure for a fund's derivatives is that it:
VaR states a loss level unlikely to be exceeded at a confidence level, but says nothing about the SIZE of losses in the worst tail beyond it; extreme events can far exceed VaR, so it should be complemented with stress tests.
VaR is a threshold, NOT a maximum; it is silent about the severity of tail losses that breach it.
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