VaR/Risk limits

VaR is a measure of the potential worst-case losses that the current trading positions could sustain over a given time horizon, Compass VaR is calculated as a 95% 1-day VaR updated in real-time as positions and market conditions change.

Each instrument in Compass has a calculated VaR contribution per 1 unit traded which dynamically changes as market volatility changes. Compass then uses a covariance matrix to calculate VaR based on currency-bucketed positions. The covariance matrix estimates the relationship between these different currencies. For example, if the value of AUD increases it's likely the value of NZD will also increase, so AUD and NZD will have a positive covariance in the matrix. Read more on how VaR is Calculated in Compass.

Var-based risk management

Compass supports many different types of risk management but one way risk can be managed in Compass is via VaR-based Risk Management, different hedging rules can be tied to levels of VaR, which allows for the construction of various hedging strategies based on the risk currently present in the portfolio. MaxVar is configured in Compass to ensure a managed book is bound and will not go above the given level, hedging rules can then trigger at given VaR levels defined as a percentage of maxVar. Read more about how VaR is tied into hedging here: Hybrid Hedger Tuning - Triggers

We can determine an Anchor VaR that is appropriate for your flow through simulations.