How Does a VaR Simulation Work?

Inputs

• Portfolio Value — the total value of your investments.
• Standard Deviation (Volatility) — how much portfolio returns fluctuate.
• Confidence Level — the probability (e.g., 95 %, 99 %) your loss will not exceed the calculated VaR.

Calculation

The VaR formula estimates potential loss:
VaR = Portfolio Value × Volatility × Z-Score

• Z-Scores for common confidence levels:
  • 1.65 for 95 % confidence
  • 2.33 for 99 % confidence
  • 2.58 for 99.5 % confidence

Output

The simulator returns the dollar amount you could lose at the chosen confidence level.
Example: With a $100,000 portfolio, 10 % volatility, and 99 % confidence,
VaR ≈ $23,300 — “There is a 99 % chance you won’t lose more than $23,300 in a day.”

Visualization

The bar chart compares VaR across key values for quick risk insight.

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Why Use a VaR Simulation?

• Risk Awareness — gauge worst-case losses.
• Portfolio Optimization — identify vulnerabilities and refine strategy.
• Decision Support — help investors and managers prepare for uncertainty.