In finance, a common way of evaluating an investment uses the investment’s expected return and the investment’s risk, in the sense of the investment’s volatility, or exposure to chance. A version of this method derives from a general mean-risk evaluation of acts, under the assumption that only money, risk, and their sources matter. Although the method does not require a measure of risk, finance investigates measures of risks to assist evaluations of risks. An investment creates possible returns, and the variance of the probability distribution of their utilities is a measure of the investment’s risk. This measure neglects some factors affecting an investment’s risk, and so is satisfactory only in special cases. Another measure of risk is known as value-at-risk, or VAR. It also neglects some factors affecting an investment’s risk, and so should be restricted to special cases.
An analytical method of estimating Value-at-Risk on the Belgrade Stock Exchange