Value-at-Risk (VaR) is a measurement tool that allows firms with a broad commodity portfolio to better measure and manage risk as it occurs.  It uses statistical methods to measure and describe market risk in probabilistic terms.  VaR has long been the standard for risk measurement and reporting in the banking and energy industries, but is starting to gain greater acceptance by firms in other industries that have price risk exposure to a diverse set of commodity markets.

VaR Advantages

• Fully accounts for correlations across commodities.
• Everything is converted to a common currency unit.
• Facilitates communication across all levels of corporate management.
• Can easily be incorporated into corporate risk policies and procedures.
• Sensitivity and stress-testing analysis can be used to better understand and manage risk.
• Can be used to assist in making optimal business planning and management decisions.

We have in-house personnel experienced in developing VaR models for clientele in food, fiber and energy industries. FCStone can provide education and seminars on how to best implement VaR methodologies within your company.  VaR can easily be incorporated into FCStone’s Integrated Risk Management Program (IRMP) risk measurement and reporting.

Let FCStone help you with other At-Risk models, including:

• Budget at Risk – measures change in net procurement costs versus budget value. For example, determining odds that a particular risk management plan will meet budget, and if not, the likelihood of falling short of budget.
• Margin at Risk – measures change in profit/loss of particular business unit (outputs minus inputs).  For example, evaluating potential margin impacts of various product formulations.

 To learn more about Value-at-Risk, contact Dave Bullock at 952-852-2913.