Profit at risk
Profit-at-Risk (PaR) is a risk management quantity in energy trading to measure price risk of a portfolio of physical and financial assets by determining the not-realized EBIT within a given holding period which will not be exceeded with a probability.[1] Mathematically, the PaR is the quantile of the profit distribution of a portfolio.
Example
If the confidence interval for evaluating the PaR is 95%, there is a 5% probability that due to changing commodity prices, the gross margin variation will exceed the PaR value over the specified holding period.[2]
Critics
In contrast to the traditional Value at risk, more advanced risk measures like the PaR, Earnings-at-Risk (EaR) or Margin-at-Risk (MaR), the exact (algorithmic) implementation rule vary from firm to firm.[3]
See also
References
- ^ "What is Profit-at-Risk (PaR)?". .arbitrage-trading.com. ART Ltd. Retrieved 8 January 2016.
- ^ "Risk Glossary". risk.net. Retrieved 8 January 2016.
- ^ Burger, Markus. "Risk measures for large portfolios and their applications in energy trading" (PDF). risklab.es. EnBW Energie Baden-Württemberg AG. Retrieved 8 January 2016.