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date: 22 January 2019

Abstract and Keywords

Banks are exposed to market risk, interest rate risk, credit risk, liquidity risk, and operational risk. For any bank, the measurement and management of risk is of the utmost importance. This article describes the widely used VAR method of risk measurement. Accurate risk measurement enables banks to develop a risk management strategy, using derivative instruments such as futures, forwards, options, and swaps. However, the recent subprime crisis demonstrates that the use of derivative instruments does not by itself mitigate the risks of banking.

Keywords: risk exposure, risk measurement, VAR method, derivative instruments, subprime crisis, banking risks

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