# VAR

VAR tells the probability of loss as well as the amount that can be lost - True/False? Shorter the time period, greater the VAR - True/False?

discussed, and argued, last week i think. VAR gives both a dollar amount and the associated probability with that amount.

true

Thats just not a good question…

shorter time period - smaller var, so false

^agree.

VAR tells the probability - it tells the probability of a minimum loss so true well as the amount that can be lost - it tells the minimum amount that can be lost, so true overall: TRUE

VAR tells the probability of loss as well as the amount that can be lost - True/False? This is why I hate T/F questions. If you take it at face value it is FALSE b/c yes it does provide a probability of loss, its doesn’t tell you the MAX that can be lost. For instance a 5% VAR of \$5M just tells you that there is a 5% chance that the portfolio will lose at least \$5M over the time period…it doesn’t tell you the Exact Amount of loss… But then again they say not to read into the questions, so you answer TRUE. Oh and second one is FALSE

1. False (it said - VAR is used to predict the probability of loss associated with a min value) 2. False (longer time periods have greater VARs) - Stalla

^Oh good so my logical thinking didnt take me astray

isn’t it sigma*(time)^0.5?? so as time period gets longer VaR gets larger. my question would be sometimes VaR is calculated by subtracting the deviation from mean return, sometimes from zero. OK you’d argue the mean returns is zero (it’s one of the stylized facts as far as i remember) and zero return level is used for simplicity but. Which one do you guys usually use or will use in the exam??

This is why i think Schweser and Stalla should take some logic courses. VAR tells the probability of loss as well as the amount that can be lost 2 logical statements 1) VAR tells the probability of loss 2) well as the amount that can be lost so it can be say 1 & 2 = T 1) Var tells the probability of a loss is TRUE, because it tells the probability of a minimum loss that is a specific case of the probability of a loss. 2) Var tells the minimum amount that CAN be lost, so it definetly tells the amount tha CAN be lost both are True.

Stop thinking in Computer logic The amount that CAN be lost is a Finite amount. If I tell you that out of \$100 you CAN lose \$50. That implies ok I can ONLY lose \$50, but VAR states that you CAN lose AT LEAST \$50 if not all of it.

I read in CFA book chapter 10 where it explicitly states that the disadvantage of VAR being its inabilty to quantify the amount of loss…question 1 false

bigwilly Wrote: ------------------------------------------------------- > Stop thinking in Computer logic > > The amount that CAN be lost is a Finite amount. > If I tell you that out of \$100 you CAN lose \$50. > That implies ok I can ONLY lose \$50, but VAR > states that you CAN lose AT LEAST \$50 if not all > of it. are you kidding me? if out of 100 you can lose 50, it doesnt imply you cant lose all 100. wow, come on. Schweser and Stalla need to step up their game

Quantify the total loss outside the var range that is possible VAR cannot

but TVAR is better for this…

CSK. Think about it. If you tell someone to invest in a \$100 stock and they ask you, well how much can I lose in this stock and you say either: A)Well you can lose all your money OR B)You can lose \$50 To me, you are saying with B that the most I can lose is \$50, but with A you’re saying I can lose all of it… 2 differenet statemetns.

bigwilly Wrote: ------------------------------------------------------- > CSK. Think about it. If you tell someone to > invest in a \$100 stock and they ask you, well how > much can I lose in this stock and you say either: > A)Well you can lose all your money OR > B)You can lose \$50 > > To me, you are saying with B that the most I can > lose is \$50, but with A you’re saying I can lose > all of it… 2 differenet statemetns. Maybe i am missing something since english is not my first language, but again i got 98% percentile on verbal on GMAT, so i think my logic skills are OK… I am pretty sure if you say You can lose \$50, is not the same you can lose ONLY \$50

^ Tail-Value AT Risk which is the Average of the losses in the tail or something like that.