Line & 4.1 monin #% The curve represents a hypothetical Profit-and-Loss probably dinsay function. a hes mean one and standard deviation and. but fontor tails than a licimal in The $% W esteles i've Rare area to the right 145 of the total eren Red aleats the lan of under the curse, the tire represents 5% of the total aran under the curve. 3. In finance, the acronym VaR does not stand for variance; it means "value at risk." J.P. Morgan introduced value at risk in the 1980s as a way to answer a common question asked by investors: "How much might I lose?" VaR works by using a probability model to rule out the 5% worst things that might happen over some time horizon, such as the next year. The question becomes, "How low could my investment go if I exclude the worst 5% of outcomes?" You can use any probability model to find the VaR, but the normal model is common. Imagine that you manage the $1 million portfolio of a wealthy investor. The portfolio is expected to average 10% growth over the next year with standard deviation 30%. Let's convey the risk of this investment using the VaR that excludes the worst 5% of the scenarios. In other words, there is a 5% chance of losing a specific sum of money. What is this sum