In finance, VaR does not stand for variance but for

In finance, VaR does not stand for variance but for "value at risk." It is another measure of risk. It was introduced by J.P. Morgan in the 1980s as a way to answer a question that was often asked by investors: "How much might I loose?" Let X be a random variable representing the profit on an investment at the end of some time horizon, such as a year. If X is negative the investment results in a loss. Choose a confidence level α (α = 95% is a commonly used value). The α-VaR is the value x for which P (X ≤ x) = 1 − α. This means that the profit on the investment will be greater than x with probability α, and it will be x or smaller with probability 1-α. In particular, if x is negative and α = 95%, a loss of |x| or greater will occur with probability 5%.

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