simple VAR

from MOCK but modified: TRUE OR FALSE: VAR quantifies potential losses in simple terms. pls explain why .

I would say F. Does tell you magnitude of potential losses.

I’d say true because it reduces it to % chance that losses will exceed a stated dollar amount.

Mine should have read *doesn’t*

I’d say false because it is rather an estimation of the lower bound of the losses, i.e. losses will be at least X if they occur

I thought TRUE VAR is very simple calculation to understand. Although it does not give magnitude of losses but at least in someway it is quantifying the potential loss. I mean it is the calculation that leads you to understand the potentail loss !!! but the ans says nothing but just false.

Yea - false sounds right - it does not quantify the potential loss. It will tell you at a minimum you should expect x loss, or conversely, your loss 95% of time your loss will not exceed x. I think it’s TVAR that may give you an estimate of potential losses. You will average out some of the tail outcome and incorporate it into your VAR.

guys, you are super ! Thanks all ! I just feel I am so behind …

It should be TRUE. From the curriculum, reading 40 volume 5 page 225 “VAR has the attraction of quantifying the potential loss in simple terms and can be easily understood by senior management. Regulatory bodies have taken note of VAR as a risk measure, and some require that institutions provide it in their reports. In the US, the SEC now requires publicly traded companies to report how they are managing financial risk. VAR is one acceptable method of reporting that information.” I re-read the MOCK question again. It’s a trick – it asks us to identify a limitation of VAR. This particular one is TRUE but it’s not a limitation.