Corporate Risk & Valuation · Entry 10 of 71

What Is Value at Risk (VaR)?

The mathematical estimate of maximum potential loss

Core Definition

Value at Risk (VaR) is a statistical measure that estimates the maximum potential loss of an investment or portfolio over a defined time period under normal market conditions, at a given level of confidence (e.g., 95%).

Key Applications

1. Used to quantify risk and set risk limits: Helps portfolio managers ensure their potential losses stay within risk tolerances.
2. Helps assess potential losses and exposures: Useful for capital allocation and reporting to regulators.