Value at Risk Calculator

How it is calculated

The tool computes parametric (variance-covariance) Value at Risk: VaR = V × z × σ × √T, and the same as a share of the portfolio, VaR% = z × σ × √T × 100. V is the portfolio value, σ is the volatility per period (you enter it as a percentage, so 1.2 means 1.2%), T is the holding period counted in the same periods as σ, and z is the one-tailed normal value for the confidence level: 1.2816 for 90%, 1.6449 for 95%, 2.3263 for 99%. Any other confidence value falls back to 95%. Value and volatility cannot be negative and the horizon must be above zero. It assumes normally distributed returns and ignores extreme events and the expected return.

Common mistakes

• Mixing periods: entering an annual volatility with a horizon in days, or the reverse, when σ and T must be in the same unit (daily σ with days, annual σ with years).
• Typing volatility as 0.012 instead of 1.2; the field is a percentage, so 0.012 means 0.012% and VaR nearly vanishes.
• Reading VaR as the worst possible loss: at 99% confidence, a loss bigger than the figure is still expected on about 1 period in 100.
• Choosing a confidence value that is not in the list (for example 97.5), which the tool quietly replaces with 95%.
• Using the result for portfolios with options or heavy tails, where the normal assumption underestimates risk.