Define 'value at risk' (VaR).

Value at Risk (VaR) is a statistic that assesses the risk level of a portfolio by quantifying the potential loss that could occur over a specified time frame, given normal market conditions, at a certain confidence level. This helps portfolio managers and investors understand the worst-case scenario for losses, allowing them to make informed decisions about risk management and asset allocation.

By focusing specifically on the probability of loss in monetary terms, VaR provides a clear and concise metric that is widely used in finance for risk management purposes. It serves as a benchmark for understanding financial risk exposure and comparing the riskiness of different investments or portfolios. This characteristic makes it an essential tool for financial professionals when evaluating the risk associated with their investment strategies.

The other options, while connected to finance and risk, do not accurately describe the fundamental purpose of VaR. Expected returns involve predicting gains rather than assessing risk, market sentiment is subjective and does not provide quantitative risk measures, and regulatory requirements pertain more to compliance rather than a specific statistical analysis of portfolio risk.