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.

RELATED TERMS
  1. Marginal VaR

    The additional amount of risk that a new investment position ...
  2. Incremental Tax

    A tax that increases in increments based on income levels. Incremental ...
  3. Value At Risk - VaR

    A statistical technique used to measure and quantify the level ...
  4. Incremental Cost Of Capital

    A term used in capital budgeting, the incremental cost of capital ...
  5. Conditional Value At Risk - CVaR

    A risk assessment technique often used to reduce the probability ...
  6. Incremental Cash Flow

    The additional operating cash flow that an organization receives ...
Related Articles
  1. Investing

    Value at Risk (VaR)

    Value at risk, often referred to as VaR, measures the amount of potential loss that could happen in an investment or a portfolio of investments over a given time period.
  2. Professionals

    Backtesting Value-at-Risk (VaR): The Basics

    Learn how to test your VaR model for accuracy.
  3. Active Trading Fundamentals

    How To Convert Value At Risk To Different Time Periods

    Volatility is not the only way to measure risk. Learn about the "new science of risk management".
  4. Personal Finance

    Incremental Investing

    It is easier to become a millionaire now that at any time before. While you won' be buying islands, it is still a goal worth shooting for.
  5. Economics

    Understanding Incremental Cash Flow

    Incremental cash flow is the additional operating cash flow an organization expects to generate from a new project.
  6. Fundamental Analysis

    How Investment Risk Is Quantified

    FInancial advisors and wealth management firms use a variety of tools based in Modern portfolio theory to quantify investment risk.
  7. Professionals

    Introduction To Risk Management

    A solid understanding of risk in its different forms can help investors to better understand the opportunities, trade-offs and costs involved with different investment approaches.
  8. Mutual Funds & ETFs

    Standard Deviation & Value At Risk

    Standard Deviation & Value At Risk
  9. Professionals

    The Workings Of Equity Portfolio Management

    Achieve analytical efficiency by applying your evaluation to a key set of stocks.
  10. Term

    What is Incremental Cost?

    Incremental cost is the added cost of manufacturing one more unit.
RELATED FAQS
  1. What does Value at Risk (VaR) have to do with maximization of shareholder wealth?

    Learn about the value at risk statistical measure and how examining the VaR for their investments can help investors maximize ... Read Answer >>
  2. What is a "linear" exposure in Value at Risk (VaR) calculation?

    Learn how the value-at-risk (VaR) calculation is used for portfolios with linear risk as opposed to nonlinear risk, and understand ... Read Answer >>
  3. What does Value at Risk (VaR) say about the "tail" of the loss distribution?

    Learn about value at risk and conditional value at risk and how both models interpret the tail ends of an investment portfolio's ... Read Answer >>
  4. What do regulators think of Value at Risk (VaR)?

    Read about the history of value at risk metrics, and learn how regulatory agencies played a role in their promotion and how ... Read Answer >>
  5. What are some common measures of risk used in risk management?

    Learn about common risk measures used in risk management and how to use common risk management techniques to assess the risk ... Read Answer >>
  6. What's the difference between a confidence level and a confidence interval in Value ...

    Learn about the value at risk, how confidence intervals and confidence levels are used to interpret the value at risk and ... Read Answer >>
Hot Definitions
  1. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  2. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  6. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
Trading Center