The loss that a portfolio is not expected to exceed over a stated horizon at a stated confidence level. At 99% over one day, it is the loss that should be breached on about one day in a hundred.
Where you will meet it
Value at risk comes up in 112 learning outcome notes across the FRM syllabus.
A few of them:
Banks FRM Part I · Financial markets and products
“These are marked to market daily, gains and losses go straight to profit and loss, and capital is set against market risk, using VaR or expected shortfall.”
The Building Blocks of Risk Management FRM Part I · Foundations of risk management
“Quantitative measures include standard deviation, sensitivities, value at risk, expected shortfall and stress tests.”
Random Variables FRM Part I · Quantitative analysis
“It converts a probability into a point on the scale of the variable, so the median is q(0.5) and a 99% value at risk is the 99th percentile of the loss distribution.”
Measures of Financial Risk FRM Part I · Valuation and risk models
“Exam point: when returns have fatter tails than the normal, normal-based VaR can understate far-tail losses.”
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