1. What is Marginal Value at Risk (MVaR)?

Definition: MVaR measures the change in portfolio risk for a small change in the position size of a particular asset.

Purpose: It helps portfolio managers understand how adding or removing an investment affects the overall portfolio risk.

2. How Does the MVaR Calculator Work?

The calculator uses the formula:

Where:

• \( MVaR \) — Marginal Value at Risk (currency, e.g., USD)
• \( \Delta P \) — Change in portfolio value (currency, e.g., USD)
• \( \Delta W \) — Change in weight (dimensionless, between 0 and 1)

Explanation: MVaR shows how much the portfolio's risk changes when you adjust the weight of a particular asset by a small amount.

3. Importance of Marginal VaR

Details: MVaR is crucial for risk management, portfolio optimization, and understanding the marginal contribution of each asset to overall portfolio risk.

4. Using the Calculator

Tips: Enter the change in portfolio value in USD and the change in weight (typically a small value between 0 and 1). ΔW cannot be zero.

5. Frequently Asked Questions (FAQ)

Q1: What units does MVaR use?
A: MVaR is expressed in currency units (e.g., USD) per unit change in weight.

Q2: How small should ΔW be?
A: Typically 0.01 (1%) or smaller to approximate the marginal effect.

Q3: Can MVaR be negative?
A: Yes, a negative MVaR means the asset reduces portfolio risk when added.

Q4: How is this different from incremental VaR?
A: MVaR is the derivative (instantaneous rate of change), while incremental VaR measures the actual change for a discrete position change.

Q5: When would I use MVaR?
A: When rebalancing portfolios, assessing new investments, or optimizing risk-return tradeoffs.