Advisers need to be able to assess portfolio and fund risks for their clients. Market risk is often seen as variability in returns, or volatility, although this has limitations. Value-at-Risk (VaR) addresses losses but needs to be correctly understood to appreciate its strengths and weaknesses. VaR relates to uncertainties in returns, probabilities, magnitudes of adverse outcomes and relationships between assets.
In this article, Quintin Rayer gives a short introduction to Value-at-Risk, including its definition, a typical VaR statement, how it is calculated, and the different approaches used.
Q G Rayer (2019), Exploring Value-at-Risk, DISCUS, available at http://discus.org.uk/exploring-value-at-risk/, 4 pages, 28 February 2019.