A downside risk measure. The most traditional measure of risk is VOLATILITY. It however, does not factor for the direction of movement Risk is about the odds of losing money --> VAR answers what is the worst-case scenario VAR statistic: 1. Time Period (daily, monthly) 2. Confidence Level (95% or 99%) 3. Loss Amount / Percentage Methods of calculating VAR: 1. Historical Method 1. Reorganize returns from worst to best and undestand the levels 2. Variance-Covariance 1. Average Return and Standard Deviation need to be estimated 3. Monte Carlo Simulation [[Monte Carlo]] 1. Randomly generate trials without telling us anything about the underlying methodology 2. Generate random variable used in tandem with economic factors to predict outcomes over a large spectrum 3. Black Box of random, probabilistic, outcomes