Value at Risk on the buyside
Guys,
I understand what VAR is etc. etc. but, to me, it seems much more relevant of a statistic to the sell side than buyside.
Can someone please explain to me the value the VAR statistic can bring to a bond portfolio manager?
I'm not really sure you know what VAR is, to be completely honest.
VAR measures the statistical maximum loss that you may experience in any given day with a 95% (usually) confidence.
Why would it be at all relevant to the sell-side? Sell-side doesn't have a portfolio to manage... what could they lose?
Conversely, the buyside does have a portfolio with a certain amount of risk. Knowing you VAR for that portfolio
lol ...
What an idiotic post by Sovjet.
VaR is obviously relevant on the sellside, because sellside trading desks will frequently have their book restricted to $x VaR rather than on an exposure/asset basis.
Similarly on the buyside, you will typically have both an exposure/VaR limit on your allocation if you are in a multi-strategy FICC orientated hedge fund - equity/credit focused funds tend to have less of this, as the majority of cash instruments are risk-managed in a less formal manner.
It's worth noting that certain retail-marketed fund structures (such as UCITS in Europe) will have VaR restrictions as part of their ruleset, and some understanding of that, albeit not crucial, has some value as a portfolio manager.
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