Total Portfolio Heat Ceilings & Parametric Value-at-Risk (VaR)

Capping simultaneous open stop-loss risk (Portfolio Heat) at 5%–6% of equity across all open positions. Within the Risk & Capital curriculum (Portfolio & Margin Math → Correlation & Tail Hedging), this topic establishes the concrete quantitative rules and execution mechanics required for live market deployment.

Professional desks never rely on ambiguous visual guesses for portfolio heat. Instead, every entry, invalidation level, and risk parameter is defined mathematically before a single order reaches the exchange gateway.

Hover over key terms below for instant definitions: Portfolio Heat, Value At Risk, and Var. For the complete mathematical derivation and edge-case analysis, open worked example & quantitative lookup matrix for portfolio heat var limits.

• Portfolio Heat — Core structural driver governing total portfolio heat ceilings & parametric value-at-risk (var).
• Value At Risk — Prevents premature entries and enforces mechanical discipline across Correlation & Tail Hedging.
• Var — Ensures worst-case scenario losses stay strictly within predetermined R-multiple budgets.

1. 1
   1. Pre-Session Calibration & Regime Check

   Measure baseline volatility and liquidity parameters for portfolio heat prior to market open.
2. 2
   2. Mechanical Signal Confirmation

   Wait for a completed bar close confirming the value at risk threshold—never pre-empt mid-candle.
3. 3
   3. Risk-Normalized Sizing & Order Placement

   Compute exact lot quantity from the invalidation distance and dispatch via a Marketable Limit order.
4. 4
   4. Post-Trade Telemetry & Audit

   Log arrival price, fill slippage, and MAE/MFE metrics against the Correlation & Tail Hedging benchmark.

Implementation & Quantitative Model

1export function calcPortfolioHeatPct(openRiskRupees: number[], equity: number, maxHeatPct = 6.0) {2  const totalRisk = openRiskRupees.reduce((s, r) => s + r, 0);3  const heatPct = (totalRisk / Math.max(1, equity)) * 100;4  return { heatPct: Number(heatPct.toFixed(2)), canOpenMore: heatPct < maxHeatPct };5}

Cross-reference standard risk definitions such as drawdown, slippage, and Sharpe ratio when auditing your logs.