# Parametric VaR

*Risk & Portfolio — Finicade finance glossary*

Parametric VaR assumes returns are normally distributed and computes risk directly from volatilities and correlations. It's fast and transparent enough to decompose across a whole firm, which is why it survives. It's also structurally optimistic: real returns have fat tails, so a normal assumption systematically understates the size of the rare loss, and it handles options badly because their payoff isn't linear.

**Formula:** `VaR ≈ Portfolio value × z-score × Portfolio volatility`

**Also known as:** variance-covariance VaR, delta-normal VaR, analytical VaR

**Related terms:** [Value at Risk (VaR)](https://finicade.com/glossary/value-at-risk), [Historical Simulation](https://finicade.com/glossary/historical-simulation), [Normal Distribution](https://finicade.com/glossary/normal-distribution), [Portfolio Variance](https://finicade.com/glossary/portfolio-variance), [Fat Tails](https://finicade.com/glossary/fat-tails)

**Taught in:** Risk Arena — Your First VaR

Source: https://finicade.com/glossary/parametric-var