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?
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.
Get Answers For Free
Most questions answered within 1 hours.