Value at Risk (VAR)

1. Value at risk is a calculation that allows a firm to estimate the maximum amount that it might expect to lose in an asset portfolio in a given time period with a given probability. It is a measure used to estimate how the value of the portfolio might decrease over a certain time period under usual conditions. It has two parameters: the time period and the confidence level at which the estimate is made. The time period is usually one day or 10 days. Confidence levels are usually 99 or 95 percent. The worst loss that might be expected from holding a security or portfolio over a given period of time, given a specified level of probability.