Value at risk

(VaR).

Value at risk analysis quantifies the risk of a position by estimating the maximum likely loss from changes in market prices, within a specified time period, with a specified level of confidence.

For example if weekly VaR is assessed as €250,000 at a 95% level of confidence, it means we are 95% confident that cumulative net losses for any one week will not exceed €250,000.

So the probability that weekly losses will exceed €250,000 is 5%, according to the VaR assessment.

The specified time period is commonly the planned holding period, or else the time lag before the holder of the position could normally respond to close out their loss-making position.

See also

• Correlated value at risk
• Delta-normal method
• Frequency distribution
• Historical simulation method
• Incremental VaR
• Leptokurtosis
• Marginal VaR
• Monte Carlo method
• Standard deviation