Risk Assessment Calculator

No — it's a simplified normal-distribution approximation that estimates a standard deviation from the gap between your worst-case and expected loss inputs, rather than measuring one from actual historical loss data. It's useful for a quick, directionally-correct estimate, but a rigorous VaR calculation for real capital or reserve decisions should be built from an actual loss distribution or historical simulation.

A higher confidence level (say 99% instead of 95%) uses a larger z-score in the VaR formula, because it's asking about a more extreme point further out in the tail of the loss distribution. The 99% VaR is the loss level exceeded only 1% of the time, which is necessarily further from the mean than the 95% VaR's threshold, exceeded 5% of the time.

Value at Risk marks a threshold: the loss level you're not expected to exceed at your chosen confidence level. Conditional Value at Risk (Expected Shortfall) goes a step further and estimates the AVERAGE loss specifically among the scenarios that do exceed that threshold — so CVaR is always at least as large as VaR at the same confidence level, answering 'how bad does it get when we cross it' rather than just 'where's the line.' Maximum Probable Loss, by contrast, is reported in this calculator as exactly the same figure as Value at Risk — a legitimate industry synonym in some actuarial contexts, but not an independently derived number, so don't treat the two as separate confirmations of the same estimate.

Risk Score in this calculator scales the worst-case loss against the exposure amount as a ratio, so a larger exposure amount with the same worst-case dollar loss represents a SMALLER fraction of the total exposure at risk — the same dollar loss simply matters proportionally less against a bigger base. This is why Risk Score is a relative metric, not an absolute loss figure.

A common approach for a rough estimate is a scenario analysis — walk through the realistic worst plausible outcome for the exposure in question (not a theoretical maximum) and use that dollar figure. Because this calculator derives its standard deviation from the gap between worst-case and expected loss, a worst-case figure that's unrealistically extreme will inflate VaR and CVaR well beyond what a properly fitted statistical model would show.