Value at risk (VaR)

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A measure of the size of the minimum value of losses expected during a specified time period at a given level of probability.  A VaR measure contains three elements: a time period, a minimum loss amount stated in units of currency,  and a probability.  

For example, a bank can have a one-day VaR of $2 million, with a 5% probability.  This means that a loss of at least $2 million in a day is expected to occur 5% of the time, or once every 20 days.  

VaR is widely accepted as a risk measure for banks and is used in establishing minimum capital requirements.

See also: CVaR

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