Value-at-Risk or VAR is a financial technique developed in the late 90s by JPMorgan. It is used to estimate the total possible loss for a day's activity within a financial firm. VAR is calculated using historical data on risk, volatility and price movements.

The problem is that it ignores the extremes (assuming the performance has a normal distribution) and these tail-risks are the ones that can bankrupt an institution very quickly. For general day-to-day activities however, VAR is quite useful and accurate.

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