bboo

me.tega Wrote:
-------------------------------------------------------
> bpdulog Wrote:
> --------------------------------------------------
> -----
> > Shortfall risk is the inverse of VAR. VaR
> gives
> > you the monetary loss in % terms, Shortfall
> risk
> > gives you the % of losing a certain amount.
>
> Huh?? You mean shortfall risk will also indicate
> the confidence level?

Value at risk (VAR) A probability-based measure of loss potential
for a company, a fund, a portfolio, a transaction, or a strategy
over a specified period of time.
(Level III Volume 5 Alternative Investments, Risk Management, and the Application of Derivatives , 4th Edition. Pearson Learning Solutions G-19).
<vbk:9780558655976#page(G-19)>


Shortfall risk The risk that portfolio value will fall below some
minimum acceptable level during a stated time horizon; the
risk of not achieving a specified return target.
(Level III Volume 5 Alternative Investments, Risk Management, and the Application of Derivatives , 4th Edition. Pearson Learning Solutions G-17).
<vbk:9780558655976#page(G-17)>

Does it make sense now? One is given a probability you will lose at least/at most x amount and the other is what are the chances of not gaining or losingx amount?

VAR: 5% chance of losing at least $100 million.

Shortfall: 5% chance of portfolio declining below $500 million or 10% chance portfolio return will not be 20%.

NO EXCUSES