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标题: VAR increases or decreases question [打印本页]

作者: LPoulin133    时间: 2011-7-13 14:04     标题: VAR increases or decreases question

This is 2010 Mock PM Case 3:



1. A change from 95% confidence level VAR to 99%, would provide a _______ VAR estimate?
higher? lower?


2. A change from daily VAR to monthly VAR, the VAR estimate would ________?
increase? decrease?

According to guideline answer:
Question 1, lower;question 2 increase.


And:
Using a 95% confidence level, the portfolio has an average daily VAR of $1ml.

Statement: the VAR represents a maximum loss that will not be exceeded. True/false?

My opinion: when VAR comes with 5%, it is minimum loss; when comes with 95%, though same amount, it is maximum loss. Am I correct?
作者: Roflnadal    时间: 2011-7-13 14:04

1. Higher - I don't know why the guideline answer says lower
2. Increase

False. VAR never gives you the maximum loss, only the maximum loss at a stated probability.

NO EXCUSES
作者: zwjy    时间: 2011-7-13 14:04

No VAR represents with 95 percent confidence (or whatever the number) the maximum loss. But there is a 5 percent chance that it could be WAY WAY worse than 1 million.
作者: infinitybenzo    时间: 2011-7-13 14:04

And yes 99 percent shoudl be HIGHER than 95 percent.
作者: strikethree    时间: 2011-7-13 14:04

Agree...

1. Higher
2. Increase
3. True - assuming that question is asked in context of a previous stmt which does have 95% prob stated
作者: mar350    时间: 2011-7-13 14:04

1) VAR = Rp - z * Std dev

If confidence interval increases from 95% to 99%, then the z score increases from 1.65 to 2.3.

This VAR decreases. Thats correct right?
作者: Zestt    时间: 2011-7-13 14:04

niraj_a Wrote:
-------------------------------------------------------
> 1) VAR = Rp - z * Std dev
>
> If confidence interval increases from 95% to 99%,
> then the z score increases from 1.65 to 2.3.
>
> This VAR decreases. Thats correct right?


That's actually my question.
-The value of the VAR decreases.
-The magnitude of the VAR increases.

So if question simply ask about VAR, shall I say increase? or decrease? Higher? or Lower?
作者: Darien    时间: 2011-7-13 14:04

jin,

unless they ask about magnitude, don't worry about it IMO.
作者: Iginla2011    时间: 2011-7-13 14:05

The actual number will be more negative (i.e. less) but VAR is measured as a loss number so a lower number indicates a greater loss and hence a higher VAR.
作者: cityboy    时间: 2011-7-13 14:05

CFAtime - will it always be negative?

now i'm starting to get scared about this. cant be sure of any answer!
作者: liangfeng    时间: 2011-7-13 14:05

Just picture a normal distribution.

We're looking at the left tail of this distribution.

95% - there's 5% to the left of the VAR number. (say the VAR number = -1,000,000)

99% - there's 1% to the left of the VAR number. (say the VAR number = -1,500,000)

What does that mean? The 99% VAR occurs further in the tail i.e. it's lower in numeric terms.

But VAR tells you about the maximum loss at a given % confidence so for 95%, your maximum loss is 1m but for 99%, your max loss is 1.5m.

HENCE, higher VAR for higher confidence level.
作者: Unforseen    时间: 2011-7-13 14:05

it depends on the wording. The example given was not precise enough. VAR will increase in MAGNITUDE if you lower the probability. In other words, the lower the probability the higher the expected loss.
作者: susana    时间: 2011-7-13 14:05

bpdulog, I don't agree

VAR gives you the MINIMUM expected loss given a certain period and %confidence level, loss can alway be higher than stated VAR

as the confidence level increases, so does the expected loss

as the period (days -> weeks -> months ->....) increases, so does VAR

both is logical and easy to remember, as the very highest loss (with either method) is @100% and you get closer if you move towards this

...and of course you would expect to get to this highest loss more probable in the next 10 years then by next tuesday

re negative and positive values: the thingie is calle "Value at risk", so it must be a positive number ($$$ or % @risk)

otherwise, it would be called "gain at risk" (which would be negative) ;-)

of course, if you develop VAR from historical figures f.e., you look at negative numbers, but the VAR would still be stated positively
作者: Unforseen    时间: 2011-7-13 14:05

I'm talking about absolute values here, you guys are over analyzing.

NO EXCUSES




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