Risk Analytics / Value at Risk

📝 Description

The VaR Chart visualises the potential downside of an options structure by plotting the historical distribution of daily profit and loss. It is used to quantify the risk of loss under normal and stressed market conditions, helping users manage capital and exposure prudently.

• VaR (Value at Risk): The maximum expected loss at a given percentile (e.g., 95%)
• Expected Shortfall (ES): The average loss in the worst-case scenarios beyond the VaR threshold

It enables users to understand and control tail risk, assess the probability of large losses, and meet risk management or regulatory reporting requirements.

🎛️ Interactive Controls

• Include delta cross to analytics - Add cross to the analytics with the selected structure.
• Percentile Selector - Set the confidence level (e.g., 95%, 99%) for calculating VaR and ES.
• Lookback Period - Number of past days used for historical P&L simulation (100 to 500).
• P&L Period - Choose P&L horizon in days: 1, 2, 3, 5, 7, 10

📌 Chart Components

Histogram

• X-Axis: Daily (or custom period) P&L values in thousands ($k)
• Y-Axis: Frequency/count of occurrences
• Color Coding:
  • Blue: Losses
  • Green: Gains
• Transparency:  more solid the older are the observations. 

Vertical Markers

• VaR Line: Indicates the loss threshold at selected percentile (e.g., -$22.81k for 95%)
• Expected Shortfall Line: Indicates the mean loss of values worse than VaR (e.g., -$27.83k)

📚 Data Sources

• P&L Time Series: Derived from historical mark-to-market values of the selected strategy or structure.
• Distribution Calculation: Performed over the user-defined lookback window.
• Risk Metrics: Computed from empirical (non-parametric) distribution — no assumption of normality.

🧩 Interpretation Tips

• Right-Skewed Distributions: Strategy has more frequent small gains and rare but larger losses.
• Wide Tails: Indicates higher exposure to rare events — risk of large drawdowns.
• VaR vs ES:
  • VaR tells you the minimum expected loss in the worst 5% of periods.
  • Expected Shortfall tells you the average loss when things go wrong — a more realistic metric of tail risk.