What is RiskMetrics?
It is a particular implementation of the Variance/Covariance approach to calculating VaR. It is particular, not general, because it assumes a particular structure for the evolution of market prices and rates through time, and because it translates all portfolio positions into their component cash flows (or “equivalent”) and performs the VaR computation on those. It is really responsible for popularizing VaR, and is a perfectly reasonable approach, especially for portfolios without a lot of nonliearity.
