What does incremental VAR compare?

Incremental Value at Risk (VAR) is a measure used to assess the risk contribution of a specific asset to a portfolio. It focuses on how the overall portfolio VAR changes when an asset is added or removed.

In the context of comparing the VAR of the entire portfolio with the VAR of the portfolio including a specific asset “x,” this approach allows for the quantification of how much additional risk is introduced by including that asset in the portfolio. Specifically, it looks at the incremental risk that the asset contributes beyond the existing portfolio risk.

By comparing the portfolio VAR that includes asset "x" with the total portfolio VAR, analysts can identify whether the asset increases or decreases the overall risk profile of the portfolio. This is especially useful for portfolio managers when making decisions about asset allocation and risk management strategies.

The other options involve comparisons that either do not reflect a straightforward incremental analysis or mix up the assets being referenced, which does not align with the conceptual focus of incremental VAR. Therefore, option A accurately captures the essence of incremental VAR as it pertains to assessing the specific impact of asset inclusion on portfolio risk.