The three main VaR calculation methods are: (1) Parametric (variance-covariance) method — assumes returns are normally distributed and uses standard deviation and z-scores for a closed-form solution; (2) Historical simulation — uses actual past returns to build the loss distribution without assuming any particular distribution; (3) Monte Carlo simulation — generates thousands of random scenarios using assumed return distributions to estimate the loss distribution. This calculator uses the parametric method.

The Value at Risk (VaR) calculator measures the potential loss an investment or trading position could face over a specified period, given a certain level of confidence. It helps traders and investors understand the maximum amount they might lose under normal market conditions, taking into account factors such as position size, asset volatility, and the time horizon. By quantifying risk using the variance-covariance method (or parametric method), the calculator provides a clear snapshot of exposure, enabling more informed decision-making, better risk management, and the ability to set limits o

A X% Value at Risk (VaR) represents the maximum potential loss a position or portfolio could experience over a given time period with X% confidence. For example, a 5% VaR of $1,000 over one day means there is a 5% chance that the portfolio could lose more than $1,000 in a single day under normal market conditions. In other words, with 95% confidence, losses are expected to stay at $1,000 or less, giving traders and investors a statistical measure of potential downside risk to help manage and plan their positions.