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Value at Risk


Value at Risk (VaR) is a risk measure that measures the loss in a portfolio over a pre-specified time horizon, assuming some level of probability.

What do VaR results mean

For example, you choose to calculate Value at Risk for a portfolio with a 5% confidence level and get $24,592 as a result. This means that there is a 5% chance that the selected portfolio loses more than $24,592 over the next day.

The problem with VaR is that it does not consider the thickness of the tail of the distribution. That means it does not allow us to answer the question: "when losses exceed VaR, how severe should we expect that loss to be?". The answer to this is called expected shortfall.

Value at Risk Formula


Value at Risk Formula
Where:
Significance level of VaR

 — Significance level of VaR

Portfolio average return

 — Portfolio average return

Standard deviation of portfolio returns

 — Standard deviation of portfolio returns

Z-score based on the VaR significance level

 — Z-score based on the VaR significance level

Current portfolio value

 — Current portfolio value

Portfolio


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VaR Settings


Historical VaR

%

$

Rolling VaR Chart


Chart placeholderClick Calculate to get results