On Value-at-Risk (VaR)

CFA Level III Portfolio Management
#1

I was going through an online finance course conducted by a professor who defined VaR as “the maximum expected loss over a given time period.”, which made me confused for a little bit as I remembered that the CFA text defined it differently.

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I went back to the CFA text and it seem to define it differently:

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Have always struggled with this concept as even reputable finance have different ways of describing VaR. So which is right?

#4

P VAR is the minimum loss expected P% of the time and the maximum loss expected (1-P)% of the time.

For example a if a portfolio of bonds has a one month 5% VAR of $1 million, then, 5 percent of the time, the portfolio would face a minimum expected loss of $1 million and a maximum expected loss of $1 million 95% of the time.

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#5

Thank you. So the CFA text is presenting it as the former, rather than the latter.

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#6

My pleasure