The last vowel is unstressed and can be pronounced very unclearly, like a schwa sound: http://en.wikipedia.org/wiki/Schwa but it can also be said with a clearer, more normal Swedish e sound, it varies. It should not sound like an o though (and I don't hear an o sound here).
Hear a native speaker say it here: http://sv.forvo.com/search-sv/vargen/
Thanks. Yes I know that the word comes from the Old Norse. Such words have survived, for example, in the names (Ulf, Arn, Björn), but I'm curious if it is used in contemporary language. The word "ulf" is rather more like the English "wolf", the German "wolf", and even the Polish "wilk" than "varg".