Risky liquidations

It is all too easy to go for the simplest solution when liquidating an energy portfolio of different positions. Brett Humphreys discusses some of the problems with appropriately calculating the VAR associated with liquidating a portfolio

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Joe Risk Manager faces a dilemma. The board of directors at the company he currently works for has just asked whether a value-at-risk (VAR) number that has been reported represents the value that could be lost if trading operations were shut down. Joe’s response is that it does not, as the reported value at risk is based on a one-day time horizon. As at least some of the positions the company holds are at illiquid pricing points, realistically it would take more than one day to

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