Value at risk (VaR)

Roles that need it

• Market Risk Analyst
• Investment Risk Analyst
• Model Validation Analyst
• ALM Analyst
• Quantitative Analyst (Desk Quant)

Skills it belongs to

• Risk measures and sensitivities
• Descriptive statistics and distributions
• Model validation and governance

Related concepts

• BacktestingBacktesting compares a model's predictions with actual outcomes over time. For VaR it counts the days when losses exceeded the estimate; for credit models it compares predicted default rates with observed ones by grade. Too many exceptions signal a model that needs review.
• Model riskModel risk is the potential for loss or poor decisions from models that are wrong in design or data, or used outside their purpose. Supervisors expect a model risk management framework covering inventory, tiering, independent validation, use limits and board oversight.
• Stress test (supervisory)A supervisory stress test projects a bank's capital under a common adverse macroeconomic scenario over several years. The EBA coordinates the EU-wide exercise every two years, and the results inform Pillar 2 guidance. Banks also run internal stress tests for the ICAAP and ILAAP.

Sources

• CESR Guidelines on risk measurement and the calculation of global exposure for UCITS (CESR/10-788), ESMA (external site) accessed 31 Oct 2026
• SR 11-7 Guidance on Model Risk Management, Federal Reserve (external site) accessed 31 Oct 2026

Updated 31 Oct 2026.