VaR is a method used by financial institutions to measure and manage exposure to risks. It estimates the maximum potential loss over a specific time period with a given level of confidence, such as 95%. For example, a 1-day 95% VaR of €9,600 for a €1,000,000 EURPLN position means there is a 5% chance of losing more than €9,600 based on historical data of daily changes. VaR provides a simple single number to measure risk but does not indicate the scale of losses beyond the VaR amount or account for non-normal market conditions.

1. Everest-Stone

2. What is Value at Risk? According to European Central Bank definition: VaR is the maximum potential change in value of a portfolio of financial instruments with a given probability over a certain horizon In plain English: VaR is the amount that indicates how much a financial institution i.e. bank could lose in normal market conditions with probability α over a given time horizon if the worst case scenario happened Example VaR 95 = 1.000.000 € There is 95% of chances that in normal market conditions company will not suffer on the investment loses greater than 1.000.000 € - or - There is only 5% of chances that in normal market conditions company will loose on the investment more than 1.000.000 €

5. Let’s see VaR in action α = 5% α = 1% Mean = - 0,08% StdDev = 0,53%