VAR - Value at Risk

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Financial glossary Financial glossary

VAR, or Value at Risk, summarizes the risk of a given portfolio. Using a predefined probability metric, it measures the maximum potential loss that can occur (confidence level) if the portfolio positions remain unchanged over a certain period of time. It is a statistical technique based on analysing historical price developments and volatility. More precisely, there are three models for calculating VAR:

  • Variance / covariance approach (parametric method)
  • Historical simulation
  • Montecarlo simulation

For example, a VAR of 10 thousand euros with a confidence level of 95% means that the sum of 10 thousand euros is the maximum potential loss that one would have to suffer with a 95% probability during the reference period.

Related topics

See also Benchmark VAR - Value At Risk

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