Incremental Value At Risk


DEFINITION of 'Incremental Value At Risk'

The amount of uncertainty added to or subtracted from a portfolio by purchasing a new investment or selling an existing investment. Investors use incremental VaR to determine whether a particular investment should be undertaken, given its likely impact on potential portfolio losses. The idea of incremental VaR was developed by Kevin Dowd in his 1999 book, "Beyond Value at Risk: The New Science of Risk Management."

BREAKING DOWN 'Incremental Value At Risk'

Incremental VaR is based on VaR, which attempts to calculate the likely worst-case scenario for a portfolio as a whole in a given time frame. To calculate incremental VaR, an investor needs to know the portfolio's standard deviation, the portfolio's rate of return and the asset in question's rate of return and portfolio share.

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