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A statistical estimate of the maximum loss expected over a given time horizon at a specified confidence level.
A statistical estimate of the maximum loss expected over a given time horizon at a specified confidence level.
Value at Risk (VaR) quantifies financial risk exposure across bank desks and quant portfolios. For instance, a 1-day 95% VaR of $1M means there is a 5% chance the portfolio will lose more than $1M on any given day.
Widely required by global financial regulators for capital adequacy reserves.
Calculated via Parametric, Historical Simulation, or Monte Carlo methods.
Does not describe loss severity beyond the VaR threshold (addressed by CVaR).