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Value at Risk

Olam uses Value at Risk methodology to calculate the potential loss (measured with a certain confidence level for a specified period) in fair value of its residual open positions of both physical commodities and financial hedging instruments. We calculate Value at Risk over a one day time horizon with 95% confidence level for each of our business units, and use a non-diversified Value at Risk methodology for computing the overall company Value at Risk.

This approach is very conservative as it does not provide offsets for long and short positions across different business units and also does not adjust for any correlation across different business units. We also perform scenario analyses and stress testing on our residual positions on a periodic basis to assess the impact of outlier events.