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Value at risk is a probabilistic upper bound on the loss. See for example: https://www.risk.net/definition/value-at-risk-var https://www.risk.net/definition/v
by seanhunter 7y ago
Value at risk is a probabilistic upper bound on the loss. See for example:
https://www.risk.net/definition/value-at-risk-var https://www.risk.net/definition/value-at-risk-var
"It is defined as the maximum dollar amount expected to be lost over a given time horizon, at a pre-defined confidence level. For example, if the 95% one-month VAR is $1 million, there is 95% confidence that over the next month the portfolio will not lose more than $1 million."
- jamez1 7y agoThat is incorrect, most definitions you'll see of VaR are incorrect. Think about it logically - the purpose is to quantify the tail events you've observed in the past. Practically that would be the lower bound (as the future can surprise you more). Read the discussion on VaR here if you're interested in the detail: https://martinkronicle.com/aaron-browns-red-blooded-risk/ https://martinkronicle.com/aaron-browns-red-blooded-risk/