Schweser_Reading 27_Concpet Checkers_Q3

CFA Level III Derivatives
#1

The answer states that one of the disadvantages of the analytical VaR is “No indication of the size of potential losses in the tail”. What does that mean?

#2

If you have a 1 week 5% VaR of $1,000,000, that means that there’s a 5% chance that your loss in one week will exceed $1,000,000. It could exceed $1,000,000 by being a loss of $1,000,001, or it could exceed $1,000,000 by being a loss of $1,000,000,000,000,000.

#3

Thanks!!

#4

My pleasure.