Which of the following is true of value at risk (VAR)?

Question

Quizplus · Accepted Answer

Value at risk (VAR) is the maximum loss that a financial asset or portfolio can suffer with a given probability over a given time horizon, under normal market conditions. It is typically expressed as a specific dollar amount or percentage of the portfolio's value. Therefore, option D, which defines VAR as the worst loss possible under normal market conditions for a given time horizon, is the correct answer. Option A is incorrect because VAR can be applied at any significance level, not just 5%. Option B is incorrect because the normal distribution curve of VAR becomes more concentrated (narrower and higher) as the time horizon shortens. Option C is incorrect because the percentage of the portfolio invested in risk-free assets is not related to VAR.

Which of the Following Is True of Value at Risk