Explain 'Value at Risk' (VaR).

Explain 'Value at Risk' (VaR).

Approach: Define the maximum potential loss over a specific timeframe at a given confidence level.

A statistical measure that quantifies the level of financial risk within a firm or portfolio. For example, a 1-day 95% VaR of $1M means there is a 5% chance the portfolio will lose more than $1M in one day.

Follow-up: What is 'Conditional VaR' (CVaR) or Expected Shortfall?

Key concepts: confidence interval, percentile, loss.