VAR (Value at Risk)

Value at Risk (VaR) is a financial metric used to estimate the maximum potential loss on an investment or portfolio over a specific time period, within a given confidence level. For example, a daily VaR of $1 million at 95% confidence suggests there’s a 95% chance the loss won’t exceed $1 million in a day. It helps investors and institutions understand and manage the risk of significant losses, providing a quantitative measure to assess the possible downside under normal market conditions.