02.07.06 |【06】| Use of “Value at Risk (VaR)”

What is Value At Risk❓

Value at Risk – VaR – amount at risk to be lost from an investment – under normal market conditions – over a given holding period – market risk of asset portfolios.

VaR – by normal distribution – at a particular confidence level – measure of how the market value of – asset or portfolio of assets – likely to decrease – over a holding period – under normal market conditions.

Which confidence level is normally used❓

ℹ Confidence level – either – 95% OR 99%.

ℹ 95% confidence level – VaR – 5% chance of being lost.

Illustration❓

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where :

σ = population standard deviation

μ = population mean

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