“Lowering the probability and increasing the time horizon will increase the VAR” Does that mean going from 99% to 95% or going from 5% to 1%?
going from 5% to 1%… i.e youlower the probability of the tail so you increase your confidence (i.e. from 95% to 99%)
Got it - thanks for the clarification.
i thought increasing the time horizon reduces VAR.
increasing time horizon INCREASES VAR, unless ofcourse assumed rate of return != 0
As far as test concerned Increasing T increases VAr
Nope - think about it - your 1 day VAR will be less than your Annual VAR.
bips its the opposite
sorry, my mistake. i was confusing the usefulness of VAR with the measure of VAR. mind is a muddle!
I think lowering the probability would decrease VaR. I look at lowering the probability as going from 99% to 95%. I guess it would depend how it’s stated in the problem. If you are presented with 99% VaR, I would say lowering the probability will decrease VaR. If you are presented with 5% VaR, I would say lowering the probability will increase VaR.