Empirical VAR Financial Glossary

What is it? A measure of a financial instruments, a portfolio of financial instruments, or an entitys exposure to reductions in value resulting from changes in prevailing interest rates. Also known as simulation VAR, empirical VAR is one of several different methods for calculating VAR. Empirical or simulation VAR calculates VAR by modeling potential value changes for a defined time horizon over a large number of possible scenarios. The result of these hundreds or even thousands of simulations is a distribution of possible outcomes. VAR is then calculated from that distribution. This approach does the best job of capturing option risk. Unfortunately, it is the most computationally intensive of the three statistical techniques for calculating VAR.

Finance Term Definition Added By: Faith

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