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.
