Value at Risk

VaR states a threshold, not a maximum: a 95% one-day VaR of ₹20,000 means losses should exceed that on about one day in twenty, and says nothing about how bad those days are. That silence about the tail is its central criticism and the reason conditional VaR exists. The parametric version assumes normally distributed returns, which understates extreme events because real returns have fat tails. It is widely used in regulation and risk reporting because it produces one comparable number, which is a virtue for oversight and a hazard for anyone reading it as a worst case.