From Schweser Exam 2AM: “VaR also only indicates the minimum loss at a given level of significance, but gives an analyst no information on potential losses beyond this minimum amount.” Is that right? Page 457 Book 4 says "Value a risk provides both the amount of an expected largest loss as well as its probability. For example, the VaR could be stated as “there is a 95% chance that a fund will not lose more than 11.4% of its value over the next quarter.” seems like schweser notes say that VaR does indeed provide information on max loss.

95% chance of 11.4% loss - too many probabilities in there. It is not telling you the max. amt of loss. since there is a 95% chance --> it could well exceed that amount. so max loss could be way higher!

It doesn’t, using your example: 95% chance the fund will not lose more than 11.4% next quarter or 5% chance the fund will lose at least 11.4% next quarter That’s probably all we need to know for the exam.

This is true. VaR is well known to be a flawed risk measure. It gives an estimate of the loss that would not be exceeded (say, 95% of the time over a given time horizon) but gives NO insight of the expected loss should a loss occur. This measure is called conditional VaR … I would be shocked if we had to know this for the exam.

i agree that we dont need to know this much detail. also to cpk and bpdulog: i see your logic that var doesnt provide you with a max risk because theres a 5% chance that it could be way higher and we dono what that risk is. however, is it correct to really say it only provides a minimum loss? The 11.4%, though not the max, is not really the min…