valuatarisk

Valuatarisk is a risk assessment framework that combines value-based valuation with traditional risk measurement to estimate how the value of an asset or portfolio may decline under adverse conditions. The term highlights the difference between market price and fundamental value and supports decisions under uncertainty.

Core concepts include treating value as the central objective and distinguishing fundamental value from market price. It incorporates value drivers such as cash flows, growth, margins, and capital structure, and risk drivers such as volatility, liquidity, credit risk, and macro factors. The approach uses scenario analysis and probabilistic modeling to map distributions of future value, extending concepts like value-at-risk to the value dimension.

Methodology typically involves modeling baseline fundamental value, projecting alternative scenarios (growth, discount rates, cash flows, liquidity events), weighting outcomes by probability, and computing metrics like downside value-at-risk and expected shortfall relative to a chosen value threshold. It emphasizes governance, with risk limits tied to strategic value and sensitivity tests of key drivers.

Applications include asset management, corporate valuation, and risk governance. It is particularly relevant for long-horizon or illiquid assets where fundamental value plays a central role, aiding capital allocation, risk reporting, and stress testing beyond price-based measures.

Limitations include model risk, data intensity, and subjective judgments in estimating value drivers. Valuatarisk should complement traditional risk metrics rather than replace them, and its usefulness depends on transparent assumptions and ongoing validation.

See also: Value at risk, risk management, valuation, scenario analysis.