Explanation:
Value at Risk (VaR) measures the maximum expected loss over a specific time horizon at a given confidence level. A 250-day VaR of $250 million at 99% confidence indicates that we are 99% confident that the portfolio's losses will not exceed $250 million over the next 250 days. Conversely, there is a 1% chance that the loss will exceed $250 million.
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Q.31 A bank estimates that its 250-day VAR is $250 million with 99% confidence. This means:
A
There is only a 1% chance that the bank will gain more than $250 million in 250 days.
B
The daily loss over each of the next 250 days is $1 million with 99% confidence.
C
The loss over the next 250 days is expected to be no more than $250 million in 99% of the cases.
D
The cumulative loss over the next 250 days is expected to be at least $250 million.
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