Which of the following statements defines Value-at-risk (VaR)?

Value-at-Risk (VaR) is a statistical measure used to assess the risk of loss on a specific portfolio of financial assets. It estimates the maximum potential loss with a given confidence level over a defined period.

Maximum Likely Loss: VaR calculates the worst expected loss under normal market conditions at a specific confidence level.

Time Period: VaR is assessed over a specified time horizon, such as a day, week, or month.

Confidence Level: VaR is defined at a certain confidence level, typically 95% or 99%. This means there is a 95% (or 99%) probability that the loss will not exceed the VaR estimate.

For instance, a daily VaR of $1 million at a 99% confidence level implies that there is only a 1% chance that the portfolio will lose more than $1 million in a day.

References

How Finance Works.pdf, p. 201 ​