Is it possible....

to get a positive result out of the VAR calculation? So you would be saying there is a 5% probability your minimum outcome will be less than $50,000

It seems like it should be physically possible, but not likely in a real world sense.

If you’re using a high positive E®, I suppose that it would be possible. Probably not likely to happen much in reality. Maybe this could happen if you’re calculating the VAR of a short-term treasury portfolio when yields are at a reasonably high level. Not going to see it on the exam though.

maybe t-bills? but if you find a high return very low risk asset why not. but no chance if you assume zero expected return.

if it was, it would be because of some kind of arbitrage—which wouldn’t last long

definitely possible with a low risk security. If expected return is 3% and standard dev is 0.5%. Then a reasonable VAR will be positive.

It can be possible, but as everyone said, I doubt it to be true in real world, because that security will have a high return to risk ratio. (E® / stdev) > 1.65 (95% confidence level) I believe it can be possible for this asset, but, this suggests, for every 1% return you are expected to take 1.65% risk! I believe with so many good assets existing, not many managers will be willing to take this kind of risk.

well, in a great bull market, doesn’t goldman sachs make money trading most days?? can’t remember exactly but didn’t goldman have more $100MM+ commission days (realize that’s not VAR) recently than their entire history, or something similar? $100M commish day, unbelievable!!

Just to add to my earlier post… (E® / stdev) > 1.65 (95% confidence level) I believe it can be possible for this asset, but, this suggests, for every 1% return you are expected to take 1.65% risk and for a given standard deviation you will receive 1.65 times the return! I believe with so many good assets existing, not many managers will be willing to take this kind of risk and given for a fixed stdev, returns of 1.65 times is utopic.

you would need an asset with a sharpe well above 1 to get positive VaR - sign me up for it if you find one…Bernie Maddoff would have had one but I missed out on that one…

CLO’s usually provided that. (well, at least ex ante)

null&nuller Wrote: ------------------------------------------------------- > you would need an asset with a sharpe well above 1 > to get positive VaR - sign me up for it if you > find one…Bernie Maddoff would have had one but I > missed out on that one… Not really, sharpe not applicable to risk free asset held to maturity. Also, consider assets with heavy negative skew or a fat tailed distribution. You could easily be 99% sure of positive VAR, but when that 1% shows up it’s time to empty your desk.