Value at Risk (VaR)

What is Value at Risk (VaR)?

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.

 

 

Excel Modeling Course

Everything You Need To Master Excel Modeling

To Help You Thrive in the Most Prestigious Jobs on Wall Street.

Learn More

Free Resources

To continue learning and advancing your career, check out these additional helpful WSO resources: