VaR is a statistical tool that models the worst-case loss scenario within a confidence interval (e.g., 95% or 99%) over a set time horizon (e.g., one day or one month). It's used by risk managers and regulators to assess capital adequacy and strategy risk. Though powerful, VaR assumes normal market conditions and may underestimate extreme events (fat tails). It is often supplemented by Stress Testing and drawdown analysis. Institutional allocators rely on VaR to compare risk across strategies, especially when evaluating leveraged or derivative-heavy portfolios.