Question

95% VaR not only tells you the worst losses that might occur to a bank during...

95% VaR not only tells you the worst losses that might occur to a bank during 95% of the time, but also tells you how big the losses could be during the remaining 5% of the time.

True or False?

Homework Answers

Answer #1

False.

VaR tells you the worst losses that might occur during the 95% along with the amount or percentage of loss in the given time horizon. However, it is certain that if we are evaluating VaR with 95% of the confidence, there is 5% chances that the losses will be more than that is calculated in 95% VaR. However, it does not give any idea of amount of loss.

For eg ; A 95% VaR is confident 95% that the worst monthly loss will be of $100,000. There are still 5% chances that losses can exceed $100,000 but there is no prediction of definite number. So the statement is not true.

If you have any doubt ask me in the comment section.

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