VAR1 Value-at-Risk

Three ETFs move by a random walk while analyst forecasts sharpen. A potential-loss limit is fined rather than refused.

Objective

Earn profit while keeping the position inside a band of 4,000 shares long or short. Time outside the band is fined by the share and the second, and each breach by 250. Assessed on profit and loss and on the use made of the position limit of 10,000 shares.

What it shows

• Value at risk: a limit on the loss a position could suffer.
• A limit that fines instead of refusing, so a breach is a choice.
• Forecasts that sharpen, so the best position changes through the session.

Watch out for

• Using none of the limit and earning nothing.
• Using all of it early, before the forecast has sharpened.
• A fine that is small next to the profit and large across a session.

Who takes part

• Analyst — every student. Trades ETFA, ETFB and ETFC, with forecasts of each ETF's value that sharpen over the session.

Class size

Ten to forty students in one role.