2 examples from the curriculum ;
A) The 5% VaR of a portfolio is €2.2 million over a one-day period.
B) The Index Plus Fund has a one-day 95% value at risk (VaR) of $6.5 million
In example A the interpretation is you should expect a loss of at least €2.2 million on 5% of trading days.
In example B the interpretation is that ‘‘the VaR indicates that on 5% of trading days, the portfolio will experience a loss of at least $6.5 million.’’
How can the interpretation be so different? To me example B reads that you should expect a minimum loss of $6.5 million on 95% of trading days. (I know the 95% refers to the confidence interval but how are you supposed to know that from the wording?)