The variance/covariance approach is an analytical procedure for determining the value at risk. The approach is based on the classic assumption from financial theory regarding normally distributed position and price changes. The value at risk is determined in the individual risk factors via the volatilities of these factors and aggregated to the respective risk consolidation level using the correlation matrix.

As in the historical simulation (normal distribution assumption), the system determines the value at risk as a quantile of the position distribution. If a variance/covariance approach is assumed, the position value changes are normally distributed. The value at risk can therefore be determined as a multiple of the standard deviation.