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Explanation:
The VaR is the loss level that we do not expect to be exceeded over the time horizon at the specified confidence level. In other words, it calculates the maximum loss expected (or worst case scenario) on an investment, over a given time period and given a specified degree of confidence.
If the 250-day VaR is $250 million with 99% confidence, this means over the next 250 days, the bank expects to lose no more than $250 million in 99% of scenarios.
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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.