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:
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.
See also Benchmark VAR - Value At Risk