Risk
What is VaR (Value at Risk)?
VaR estimates the maximum potential loss of a portfolio over a given time period at a specific confidence level, the standard risk metric used by institutions.
Formula
VaR (95%, 1-day) = Portfolio Value Γ z-score Γ Ο Γ βt
How to Interpret
A 95% 1-day VaR of $10,000 (or βΉ1 lakh in international markets like India) means there's a 5% chance of losing more than that amount in a single day. Useful for setting risk budgets.
Typical Ranges
Depends on portfolio size and risk tolerance. Used for monitoring, not target-setting.