VAR - maximum or minimum loss ?

CFA Level III
#1

I thought VAR provided the minimum amount expected to be lost for a given probability over a period of time. Schweser exam 1 question13 I think says maximum. Can someone clarify ?

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#2

It’s both. Let’s say you’re at a 95% confidence level and the VAR is $1MM. That means the maximum loss is $1MM 95% of the time, or the minimum loss is $1MM 5% of the time.

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#3

VAR - value at risk The most you can expect to lose over a given time period with a specified level of certainty. Ex. Daily VAR of $5,000 with a 95% confidence. Plain English: On any given day, you can be 95% certain that the MAXIMUM you will lose is $5,000.

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#4

Thanks for clarifying, think I got confused with the wording in Schweser .

#5

LVL I agrees with both at least form the perspective of minimum.

“Value at risk or VaR is a measure of the size of the tail of the distribution of profits on a portfolio or for an entity. A VaR measure contains three elements: an amount stated in units of currency, a time period, and a probability. For example, assume a London bank determines that its VaR is £3 million at 5% for one day. This statement means that the bank expects to lose a minimum of £3 million in one day 5% of the time.”

(Institute 300-301)

Institute, CFA. 2016 CFA Level I Volume 4 Corporate Finance and Portfolio Management. CFA Institute, 07/2015. VitalBook file.

The citation provided is a guideline. Please check each citation for accuracy before use.

Thanks for the clarification guys.

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