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In measuring market risk, briefly explain, to a friend who is not a finance major, the...

In measuring market risk, briefly explain, to a friend who is not a finance major, the meaning of "My 1-day Value at Risk with 0.99 confidence is $100,000

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Answer #1

Basics are as follows - VAR is the minimum loss that would be expected at a certain percentage of time during assumed market conditions and is a probability measure of loss potential with a certain degree of confidence.

So, in explaining to your friend who is not a finance major , your 1 day VAR with 0.99 confidence is $100000 would imply given the asset return distribution and standard deviations, there is 99 % confidence that the loss will not exceed $100000 over the 1 day period.

I hope this helps you

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