Risk Measurement Techniques

Risk measurement techniques evaluate the likelihood and potential impact of adverse events in investments or projects. They help identify and quantify uncertainties by analyzing past data, modeling possible outcomes, and assessing changes in market conditions. Common methods include Value at Risk (VaR), which estimates the maximum loss over a certain period with a given confidence level, and stress testing, which examines how portfolios perform under extreme scenarios. These techniques enable businesses and investors to make informed decisions by understanding the potential risks involved and implementing strategies to manage or mitigate them effectively.