Value at Risk VaR

Value at Risk (VaR) is a statistical measure of portfolio risk: the maximum loss a portfolio is likely to suffer under normal market conditions at a given confidence level (e.g., 95%). If a portfolio has a 95% VaR of $1M, there's a 95% chance it won't lose more than $1M tomorrow (or chosen period). VaR quantifies risk; it helps risk managers set capital reserves and risk limits. You calculate VaR using market data, returns distributions, and statistical models. Common methods: historical simulation (use past returns), parametric (assume normal distribution), Monte Carlo (simulate thousands of scenarios).