Value at Risk
From Open Risk Manual
Revision as of 11:32, 18 March 2024 by Wiki admin (talk | contribs)
Definition
Value at Risk (VaR) is a Risk Measure that aims to capture the downside value risk of a Market Portfolio (a collection of financial instruments that can be marked-to-market).
Formula
VaR is a quantile Risk Measure and requires the specification of:
- An aggregate (Portfolio) PnL (Profit and Loss) random variable that is constructed as the sum of potential individual market losses
- A Confidence Level
Given the confidence level , the VaR of calculated portfolio loss at the confidence level is the smallest number such that the Probability that the loss exceeds is at least .