Value at risk measures the dollar loss that a given portfolio position can experience with ________ probability over a given length of time.

Question

Quizplus · Accepted Answer

Value at risk (VaR) measures the maximum potential loss with a certain level of confidence or probability over a specific time horizon. Generally, VaR is calculated for a 1-day or 10-day holding period and for different levels of confidence, such as 95%, 99%, or 99.9%. However, the most commonly used confidence level is 95% and the most commonly used holding period is 1 day. Therefore, the VaR is often expressed as "VaR 95%, 1 day," which means that with 95% confidence, the maximum loss of a portfolio will not exceed a certain amount over a 1-day holding period. In this context, the most appropriate option is C, which represents a confidence level of 95%.

Value at Risk Measures the Dollar Loss That a Given