Value at Risk Law and Legal Definition
Value at risk is the amount or percentage of value that is at risk of being lost due to a change in prevailing interest rates. In order to measure value at risk, the sensitivity of the value of a single financial instrument, a portfolio of financial instruments or an entire entity’s balance sheet to changes in interest rates is to be calculated. The result is the amount of value at risk. The simplest and least accurate measure of VAR is the difference between the calculated economic value of equity under one projected rate scenario and the calculated economic value of equity under a different projected rate scenario.
