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VaR (Value at Risk)

Statistical measure estimating the maximum expected loss over a defined time horizon at a given confidence level.

Value at Risk (VaR) is a statistical measure used to estimate the potential financial loss of a portfolio or position over a defined period at a given confidence level.

For example, a crude oil trading portfolio with a one-day 95% VaR of $2 million suggests a 5% chance of losing more than $2 million in a single day.

VaR is widely used in risk management, regulatory compliance, and capital allocation. It provides a quantitative framework for understanding exposure to market fluctuations and informs hedging strategies.

Understanding VaR allows traders, portfolio managers, and risk analysts to manage potential losses, optimize risk-return profiles, and make informed decisions under uncertain market conditions.

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