VaR computed from an assumed distribution, usually normal, using the portfolio's standard deviation. It is quick but understates risk when returns have fat tails or the positions are non-linear.
Where you will meet it
Parametric VaR comes up in 8 learning outcome notes across the FRM syllabus.
A few of them:
Measures of Financial Risk FRM Part I · Valuation and risk models
“Parametric VaR assumes normally distributed returns.”
Credit Value at Risk FRM Part II · Credit risk measurement and management
“Its P&L is roughly symmetric and is measured with historical simulation, variance-covariance or Monte Carlo on observed prices.”
Estimating Market Risk Measures: An Introduction and Overview FRM Part II · Market risk measurement and management
“Parametric VaR assumes a distribution for profit and loss (P&L) and plugs in estimated parameters.”
VaR and Risk Budgeting in Investment Management FRM Part II · Risk management and investment management
“Delta-normal VaR understates option risks, and back-testing and stress tests check the model.”
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