Value at risk (VaR) is the minimum loss that would be expected to be incurred a certain percentage of the time over a certain period of time given assumed market conditions.
Consider a $400 million portfolio. The VaR statement for this portfolio might be as follows: “The 5% VaR is $2.2 million over a one-day period.” Notice that the VaR measure has three important elements:
There are three methods to estimate VaR: