What is VaR how to calculate

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VaR stands for Value at Risk, a measure used to estimate the potential loss in value of a portfolio over a specified time period under normal market conditions.

VaR is calculated by determining the maximum potential loss within a specified confidence level over a given time horizon.
There are different methods to calculate VaR, including historical simulation, parametric method, and Monte Carlo simulation.
For example, the parametric method calculates VaR using the mean and standard deviation of historical returns, while Monte Carlo simulation generates random scenarios to estimate potential losses.
VaR is typically expressed as a dollar amount or percentage of the portfolio value.
It is important to note that VaR is a statistical measure and does not account for extreme events or tail risks.

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What is VaR how to calculate

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