Quantitative Financial Risk & Capital Adequacy
Financial risk managers protect institutional balance sheets against market volatility, credit defaults, and liquidity squeezes.
Parametric Value at Risk (VaR) Formula
For a normally distributed portfolio, the Parametric VaR at confidence level α is expressed as:
VaR_α = μ - (Z_α × σ × Portfolio Value)
- μ = Expected portfolio return
- Z_α = Critical Z-score (1.645 for 95% CI, 2.326 for 99% CI)
- σ = Portfolio standard deviation (volatility)