Credit VaR

The application of the value at risk concept for market risk to the area of credit risk measurement. It is an estimate of the amount by which the losses arising from credit risk might potentially exceed the expected standard risk costs within a year, which have been calculated into the margin charged (unexpected loss). This approach is based on the idea that the standard risk costs merely represent the long-term mean value for loan defaults, which may differ (positively or negatively) from the actual loan defaults in the current business year.