Which of the following least accurately describes shortcomings of the VaR measure of risk? VaR typically: A) assumes that component risks are additive. B) does not provide the probability of a loss. C) assumes that the left hand side returns are normally distributed.



B, I caught the LEAST likely part this time, hooray

tvPM Wrote: ------------------------------------------------------- > B, I caught the LEAST likely part this time, > hooray Me too :stuck_out_tongue:

you know whats sad… I DIDN’T catch it, yet still got it right. uh oh…

VaR does provide a probability of loss, but it only provides the minimum loss at a given probability.

“For example, if a portfolio of stocks has a one-day 5% VaR of $1 million, there is a 5% probability that the portfolio will fall in value by more than $1 million over a one day period, assuming markets are normal and there is no trading. Informally, a loss of $1 million or more on this portfolio is expected on 1 day in 20. A loss which exceeds the VaR threshold is termed a “VaR break.”"

What the other one called - drawdown risk, right?

maximum drawdown

Yeah, max drawdown I think. It doesn’t include probabilities though.

From the peak to trough!