# Surplus at Risk

CFAI states (2005 exam) that “Surplus-at-risk is most accurately interpreted as being the likelihood that BC Plc might need to contribute…” how is Surplus-at-risk is a likelihood if it is a currency amount?

Think of it almost as Value-at-Risk I guess…

exactly, value at risk is a currency measure, not a ‘likelihood’

From Wikipedia “In economics and finance, Value at Risk (VaR) is the maximum loss not exceeded with a given probability defined as the confidence level, over a given period of time” Ok, it is not an amount but percentage loss. That is fine. It is still not a likelihood

This question messed me up too. I answered this as the risk of the value between the PV of Assets and the PV of Liabilities. I was not expecting to see the contribution they need to contribute. Would have got zero on this question. This is what scares me about essay.

i answered it exactly how CFAI states it in their books. Look up Surplas-at-Risk. They say it is same thing as VAR just applied to Surplus. This explanation is defenitly not accurate

And what about std vs VAR? I completely dont dig the explanation. The only advanatage of VAR is using MC, if you have to historical data.

comp_sci_kid Wrote: ------------------------------------------------------- > And what about std vs VAR? I completely dont dig > the explanation. The only advanatage of VAR is > using MC, if you have to historical data. Was this the question on valuing a new manager? Where did they come up with that?

UAECFA, yeah, that question. I answered it correctly, as i am sure VAR has advantages over just std, for obvious reasons, but what they put in the answer was total BS

what messed me up was the fact that VAR uses st. dev., so they share the same problems. Also, i thought VAR was suppose to be for firm wide risk vs. asset mgr/asset classes (which uses st. dev., corr., mean)

VAR can be applied to ANYTHING, it is just a mathematical calculation.

i didn’t like the “new manager” b/c I view a “new manager” as someone I’m thinking about adding to my portfolio not one that has just launched his new firm/fund…

I think the takeaway is the questions format and type of questions, i am sure we all will get full credit for reasonable answers which comply with key words (justify, display… ect)

bigwilly Wrote: ------------------------------------------------------- > i didn’t like the “new manager” b/c I view a “new > manager” as someone I’m thinking about adding to > my portfolio not one that has just launched his > new firm/fund… Oh sh\$%^, I just realized now what the question is asking. I thought the same thing too bigwilly, a new manager added to my portfolio. Ok then then, VAR would make sense to a new fund. CFAI could have done a better job asking the questions. I’m sure alot of candidates f%^&*ed up that one. I hope I don’t go in this exam and say WTF are they asking me. For example, how many types how we seen the word Dynamic in L3!

Yeah it was very poor choice of words. I would have preferred if they specifically stated that this is a brand spanking new manager who still has his mother’s milk on his lips…then ok I would have understood ti better

bigwilly Wrote: ------------------------------------------------------- > Yeah it was very poor choice of words. I would > have preferred if they specifically stated that > this is a brand spanking new manager who still has > his mother’s milk on his lips…then ok I would > have understood ti better So without “mother’s milk on his lips” you wouldnt?

the mother’s milk on the lips is always the key sign

Surplus At Risk maybe is the same concept as VAR, but phrased differently. VAR is the expected loss given a certain period and probabily. If you put expected loss and period fixed, you can derive the probabilty. Similarly, Surplus at risk can refer to a probabily given the loss of splus(asset - liability) and time frame (next year). How do you guys think?