Value at Risk (VaR)

Quantitative models used by banks and accepted by the Committee referred to the model var. This model shows a maximum value over the estimated losses due to market risk of a bank's portfolio:
During a certain holding period, and
With a certain level of confidence (eg a certain probability)

Add-on techniques (techniques of Basel I for off-market assets) and Var technique is to achieve the same value that indicates a transaction (or portfolio value of all bank transactions, where they occur it is likely to offset each other) during a period (holding period).

Holding period of a transaction known as the Var → Horizon for most of the market transaction is 1 day, so it is often called the Daily Var or DVaR measure.

Reports can be risk of a bank statement containing the following:
'have a portfolio of trade DVaR of USD 5 million on the level
95% '

Meaning DVaR above is:
'in one day trading period there is a 5% likelihood that the portfolio's losses could exceed USD 5 million'

Figures in the Var model does not provide estimates of the actual losses that will occur eg in the example above there is no indication how much of USD 5 million loss will occur because it → Var must be equipped with a stress test.