Value at Risk Calculator
Value at Risk (VaR) is the standard risk metric used by banks, investment managers, and regulators worldwide to quantify market risk. It answers the question: "What is the worst loss I should expect over the next day (or N days) with a given level of statistical confidence?" This calculator uses the parametric (variance-covariance) method, which assumes normally distributed returns and is the simplest and fastest VaR approach. It is suitable for portfolios of liquid, broadly traded assets. Enter your portfolio value, daily volatility (annual volatility divided by the square root of 252 trading days), confidence level, and time horizon. The calculator outputs both the 1-day VaR and the scaled N-day VaR using the square root of time rule.
Parametric VaR formula
Daily Volatility = Annual Volatility / sqrt(252)
1-Day VaR = Portfolio Value x z-score x Daily Volatility
N-Day VaR = 1-Day VaR x sqrt(N)
z = 1.645 (95%), 2.326 (99%), 1.282 (90%)
VaR in context
- 1-day 99% VaR: used by banks for regulatory capital under Basel III/IV.
- 10-day 99% VaR: used in the Basel market risk standardised approach.
- VaR does not tell you the magnitude of losses beyond the VaR threshold (tail risk).
- Expected Shortfall (CVaR) is the average loss beyond VaR and provides a fuller tail risk picture.
- VaR is most accurate for short horizons and liquid, diversified portfolios.
Value at risk: frequently asked questions
What is Value at Risk (VaR)?
Value at Risk is the maximum expected loss over a given time horizon at a specified confidence level, assuming normal market conditions. A 1-day 95% VaR of $10,000 means there is a 5% probability that the portfolio will lose more than $10,000 in one trading day.
What confidence level should I use?
Banks and regulators typically use 99% (1% tail) for Basel regulatory capital calculations. Risk managers often use 95% (5% tail) for internal monitoring. The 99% VaR is about 2.33 standard deviations from the mean; 95% VaR is about 1.645 standard deviations.
What is the parametric (variance-covariance) VaR method?
Parametric VaR assumes portfolio returns follow a normal (Gaussian) distribution. VaR = Portfolio Value x (z-score x Daily Volatility), where the z-score corresponds to your confidence level. This method is fast and simple but may underestimate VaR during market crises when return distributions are fat-tailed.
How do I scale VaR from 1 day to N days?
The square root of time rule scales VaR: N-day VaR = 1-day VaR x sqrt(N). This assumes daily returns are independent and identically distributed. In practice, markets show serial correlation and volatility clustering, which can make the square root rule inaccurate over longer horizons.
What are the limitations of parametric VaR?
Parametric VaR assumes normally distributed returns, but actual market returns have fat tails (more extreme events than a normal distribution predicts). It also does not capture illiquidity risk or correlations that spike during crises. Historical simulation and Monte Carlo VaR methods address some of these limitations.
Official sources
- Federal Reserve: Value at Risk - Federal Reserve Working Paper.
- Bank for International Settlements (BIS): Basel II Market Risk Framework.
Reviewed by the CalculatorHub team, edited by James Graham, 14 June 2026. See our methodology.