Anyone have a good method on how to remember if VAR is stating min loss or max loss?
For example, if a question states calculate the daily VAR at 5% significance and the value is calculated to be 100,000 using the analytical method. Can someone confirm this means that 95% of the time the loss is 100,000 or less and 5% of the time it is greater than that?
Not sure why I have such issues with this…thanks.
Yea.
Switching them doesn’t make sense. It’s a value at risk at a 5% level, it won’t be 5% chance that losses will be less than that given a certain time period. Think of the graph and it will make more sense, the farther down the bell curve you go, the bigger the VAR (more negative), and the smaller the significance level. We are looking for the point at that level, and saying that this is the percentage chance of that amount of loss, and there is only x% chance remaining for the loss to be bigger.
5 percent var at 1m
5 percent of time lose at least 1m or 1m or more
95 percent of time lose less than 1m