Significance for VAR

CFA Level III Derivatives
#1

Please confirm

95% - 1.96

99% - 2.33

schweser has taken 1.65 for 95% level of significance.

#2

1.96 stipulate the you are looking at both left and right side of the distribution ( 2.5% left, 2.5% right ), which is not the case for VAR, you only look at the left side of the distribution ( 5% left side ).

#3

credit VAR looks at the right side

#4

1.645

2.33

#5

Correct.

You are looking at the two tailed z value. If you are using a two tailed valued you should be looking up 90% for 95% var.

#6

thanks. So what would be value at 90%?

#7

you are still thinking in terms of 2 tailed tests…

1.65 for Var = 90% confidence, but it is just worded differently.

for a 90% confidence interval, you have 5% in both tails, which you use the 1.65 for.

When we are talking VAR, we mention something like “5% VAR”. This is the same as have 5% in each tail, but we only care about the left side tail. There is still the 5% chance on the right side as well, we just ignore that fact.

#8

Just remember the following and you will have no problems…

95% var = 1.65 99% var = 2.33

#9

1.28