How informative are value-at-risk disclosures?

Accounting Review,  October, 2002  by Philippe Jorion

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I. INTRODUCTION

Value at Risk (VAR) has become a standard benchmark for measuring financial risk. The Group of Thirty (1993) report on derivatives stated that market risk is best measured as value at risk. Specifically, VAR provides a summary statistic of the order of magnitude of potential losses due to market risk. VAR is the maximum loss over a target horizon such that there is a low, prespecified probability that the actual loss will be larger. A company disclosing, for instance, that its daily VAR is $30 million at the 95 percent level, means that there is only a 5 ...