What Is Value At Risk (VAR)?

Patrick Curtis

Reviewed by

Patrick Curtis WSO Editorial Board

Expertise: Investment Banking | Private Equity

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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Patrick Curtis

Patrick Curtis is a member of WSO Editorial Board which helps ensure the accuracy of content across top articles on Wall Street Oasis. He has experience in investment banking at Rothschild and private equity at Tailwind Capital along with an MBA from the Wharton School of Business. He is also the founder and current CEO of Wall Street Oasis. This content was originally created by member WallStreetOasis.com and has evolved with the help of our mentors.