Question

20
Int Rate Risk Mgmt) State whether you agree or disagree with the following statement. Explain why. "Value at risk (VaR) is a technique that determines the maximum possible loss to the value of a security or an institution under the worst possible circumstances".

Answer 1

"Value at risk (VaR) is a technique that determines the maximum possible loss to the value of a security or an institution under the worst possible circumstances".

Disagree:

VaR statement or value which is calculated as per VaR is the minimum value which can be lost in worst possible event.

VaR is minimum loss which a security can experience. In case of worst case a security can lose entire value, that is that there is always a possibility of default like situation for every security.