SECTION 3.11 SECTION 3.11
1.) Pearson's clarification of the meaning of the VaR measure in Varnet's monthly report is
most likely:
A.
correct.
B.
incorrect because over a full year, the VaR will be exceeded on five or fewer days.
C.
incorrect because VaR represents a maximum loss that will not be exceeded.
Answer = A
Assuming 250 trading days per year, if daily VaR at 95% confidence level (violated 5% of
the time) is $1 million, over one year, a daily loss exceeding $1 million should occur
approximately 5% of 250 days, or 12.5 days.
“Risk Management,” by Don M. Chance, Kenneth Grant, and John Marsland