Explanation:
Value at Risk (VaR) at 95% confidence level means that there is a 95% probability that the portfolio loss will not exceed the VaR amount over the specified time horizon.
$1 million 95% of the time, when actually losses should exceed $1 million only 5% of the time.$1 million.The correct interpretation is that over a 1-day period, there is a 95% probability that the portfolio loss will be less than or equal to $1 million, and a 5% probability that it will exceed $1 million.
Ultimate access to all questions.
A risk manager states that the VaR of the portfolio at 95% confidence interval and 1-day holding period is $1 million. Which of the following statement is TRUE?
A
The daily loss on the portfolio will exceed $1 million 95% of time.
B
The daily loss on the portfolio will not exceed $1 million 95% of time.
C
The maximum loss that the portfolio can incur is $1 million at any point in time.
D
95% of risk managers will agree that the maximum loss on the portfolio will be $1 million.
No comments yet.