Discounted maximum loss
What is discounted maximum loss?
This is the worst-case scenario for a financial portfolio. It's sometimes known as the worst-case risk measure.
Where have you heard about discounted maximum loss?
You might have heard of it in relation to investment. To protect the value of an investment, you need to consider all alternatives and the worst possible scenario is sometimes used as a benchmark, against which you can measure all other options.
What you need to know about discounted maximum loss.
It's calculated using the present value of the maximum loss. This is sometimes known as present discounted value and refers to the value of an expected income stream as of the date of valuation. Discounted maximum loss is different to probable maximum loss or PML, which is the maximum loss that an insurer would expect to face. PML is mostly used for insurance policies on property and looks at the risk from events such as fire or flood.
Find out more about discounted maximum loss.
See our guide to risk measures to learn more about how volatility and risk can be predicted.