Difference between Parametric VAR and Conditional VAR

[Taycfa]

Hi, both parametric and conditional VARs measure tail risk. What is the difference?

[Julio77]

Conditional VAR is the maximum loss a company can incur, once it have reach the loss indicated by the parametric VAR

[JPEREZAR]

No, Conditional VAR is the AVERAGE or EXPECTED loss a company can have, oince it have reach the loss indicated by the parametric.

[S2000magician]

@Taycfa

Hi, both parametric and conditional VARs measure tail risk. What is the difference?

Parametric (variance-covariance) VaR gives you the minimum expected loss over a given time period at a given level of significance, and typically assumes a normal distribution of returns. Note that, in particular, it doesn’t tell you the maximum loss.

Conditional VaR starts with the condition: you’ve exceeded the minimum loss given by VaR (whether parametric, historical, or Monte Carlo). It then tries to answer the question: In that case, how bad can it be? Typically, the answer is given as the weighted average loss (or the expected loss) given that you have exceeded the minimum loss threshold.

[Julio77]

@S2000magician

@Taycfa

Hi, both parametric and conditional VARs measure tail risk. What is the difference?

Parametric (variance-covariance) VaR gives you the minimum expected loss over a given time period at a given level of significance, and typically assumes a normal distribution of returns. Note that, in particular, it doesn’t tell you the maximum loss.

Conditional VaR starts with the condition: you’ve exceeded the minimum loss given by VaR (whether parametric, historical, or Monte Carlo). It then tries to answer the question: In that case, how bad can it be? Typically, the answer is given as the weighted average loss (or the expected loss) given that you have exceeded the minimum loss threshold.

thank you, you have clear the question for me too

[S2000magician]

My pleasure.

[Taycfa]

Thanks so much!

[Taycfa]

Thanks guys!