Define: Value At Risk

UK Accounting Glossary

Definition: Value At Risk


Quick Summary of Value At Risk


Value At Risk (VAR) is a mechanism for measuring market risk and credit risk.



What is the dictionary definition of Value At Risk?

Dictionary Definition


Value At Risk (VAR) is a measure of risk developed at the former US bank J.P. Morgan Chase during the 1990’s.

This measure of risk is most frequently applied to measuring both market risk and credit risk.

It is the level of losses over a particular period that will only be exceeded in a minuscule percentage of cases.

A cut-off value for gains and losses is established that excludes a certain proportion of worst-case results (e.g. the bottom 1% of possible outcomes); the value-at-risk is then measured relative to that cut-off value.


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Full Definition of Value At Risk


VAR was initially designed to measure the overnight risk in certain highly diversified portfolios.

It has since been developed into an industry standard (within the Finance sector) and has been incorporated into the regulatory requirements applicable to financial institutions.

In the wake of the 2007-2008 financial crisis, there have been claims that VAR methodology played a detrimental contributory cause in the crisis, by fostering false confidence in the market and  by promoting excessive risk-taking.


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Value At Risk FAQ's



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Value At Risk. PayrollHeaven.com. Payroll & Accounting Heaven Ltd. https://payrollheaven.com/define/value-at-risk/ (accessed: September 20, 2019).
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Value At Risk. PayrollHeaven.com. Retrieved September 20, 2019, from PayrollHeaven.com website: https://payrollheaven.com/define/value-at-risk/

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This glossary post was last updated: 5th May 2019.