• Value at Risk (VaR) is a simple measure that answers the following question: What dollar loss is such that it will only be exceeded…

• Value at Risk (VaR) is a simple measure that answers the

following question: What dollar loss is such that it will only be

exceeded 100 × p% of the time in the next K trading days?

• If we define the VaR relative to the current portfolio value and

denote with Rt+1 tomorrow’s return, then:

P (Rt+1 < −VaR) = p

where VaR is positive by definition as it indicates a loss.

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