Value at Risk (VaR) quantifies downside risk by calculating the worst expected loss under normal market conditions, typically at 95% or 99% confidence levels. A one-day 99% VaR of $10 million means there is only a 1% chance losses will exceed that amount in a single day. Investment banks use VaR for setting trading limits, regulatory capital requirements, and risk reporting to senior management. While widely adopted for its simplicity, VaR has limitations including underestimating tail risks and varying significantly based on calculation methodology. Stress testing and Expected Shortfall complement VaR to address extreme scenarios beyond the confidence interval.