Value at Risk
Definition
A statistical measure estimating the maximum expected loss over a specified time period at a given confidence level.
Explanation
VaR answers: 'What is the worst I can expect to lose over a given period, with a given probability?' A 95% daily VaR of $50,000 means: on 95 out of 100 days, losses should not exceed $50,000. VaR is the standard risk metric in banking (required by Basel III) and institutional asset management. Three methods: historical simulation (replay past returns), parametric (assume normal distribution), and Monte Carlo (generate random scenarios). VaR's main weakness: it says nothing about how bad losses could be beyond the confidence level (for this, use Expected Shortfall/CVaR).
Formula
VaR₉₅ = μ - 1.645 × σ
How Stoquity Uses This
Stoquity incorporates value at risk analysis across its portfolio management platform, providing real-time monitoring and AI-powered insights for every portfolio.