*Spoiler* VAR Question
Given a daily 5% VAR of $5 million, which of these statements is correct and why?
“VAR is a measure of maximum loss, which in this case means we are 95% confident that the maximum 1-day loss is $5 million.”
“VAR is a measure that combines probabilities over a certain time horizon with dollar amounts, which in this case means that one expects to lose a minimum $5 million five trading days out of every 100.”
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