Value at Risk

Value at risk, or VaR, is a widely used measure of tail risk. If the 1-day 95% value at risk for a portfolio is $4 million, then there is a 95% chance that the portfolio will not lose more than $4 million, and a 5% chance that it will lose $4 million or more.

There are many different ways to calculate VaR including the delta-normal approach, historical simulation, the hybrid approach, and Monte Carlo simulation.

For more information on VaR models, see our white paper, An Introduction to Value at Risk.

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