historical VAR

A measure of a financial instrument's, a portfolio of financial instruments', or an entity's exposure to reductions in value resulting from changes in prevailing interest rates. Historical VAR is one of several different methods for calculating VAR. Historical VAR calculates value at risk by comparing the actual volatility of components or risk elements within a portfolio to the historical sensitivity of those components. This provides a range or distribution of possible losses. A single value at risk can then be calculated for the selected confidence level. Historical VAR is generally preferred for its ability to capture risk from unlikely events. However, the measured amount of VAR is heavily influenced by the choice of time horizon and by the volatility that occurred during that historical time period. If future changes do not resemble the change in value that occurred during the selected time horizon, the forecasted VAR will not be a good indicator of the real risk.

See correlation VAR, empirical VAR, and value at risk ( VAR). American Banker Glossary