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Free Online Calculator & Step-by-Step Guide
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99% VaR (Value at Risk): $0
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95% VaR (Value at Risk): $0
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Value at Risk (VaR) is a statistical measure used to quantify the level of financial risk within a firm, portfolio, or position over a specific time frame. The Monte Carlo method simulates thousands of possible future scenarios to estimate the worst possible losses at different confidence levels.
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| Component | Explanation | Importance |
|---|---|---|
| Portfolio Value | Total market value of all assets | Defines the base for loss calculations |
| Number of Simulations | How many random scenarios to run | Higher = more accurate but slower |
| Expected Return | Average historical return of the portfolio | Accounts for typical profit expectations |
| Volatility | Standard deviation of portfolio returns | Measures risk and price fluctuations |
| Time Horizon | Period over which risk is measured (e.g., 1 day) | Extending time increases potential loss |
| 99% VaR | Worst loss expected in 99% of cases | Indicates extreme downside risk |
| 95% VaR | Worst loss expected in 95% of cases | Standard measure for day-to-day risk |
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Example 1: Small Investment Portfolio
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Result: 99% VaR ≈ $2,200. This means there's a 1% chance of losing over $2,200 in the next 10 days.
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Example 2: Large Corporate Treasury
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Result: 99% VaR ≈ $315,000. The company should maintain sufficient liquidity to cover potential losses of this magnitude.
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