VAR increases or decreases question question

LPoulin133

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?

Roflnadal

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

zwjy

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.

infinitybenzo

And yes 99 percent shoudl be HIGHER than 95 percent.

strikethree

Agree...

1. Higher
2. Increase
3. True - assuming that question is asked in context of a previous stmt which does have 95% prob stated

mar350

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?

Zestt

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?

Darien

jin,

unless they ask about magnitude, don't worry about it IMO.

Iginla2011

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.

cityboy

CFAtime - will it always be negative?

now i'm starting to get scared about this. cant be sure of any answer!