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April 2016 Q1 VaR

A

Alibaba

Member
The first question on this paper has thrown me - VaR with confidence p is, in the notes, the maximum loss where there is 1-p probability of a greater loss. The solutions in this question seem to have it that p is the probability of a greater loss. Would you get marked down for assuming that the VaR with confidence 10% is the maximum loss with 90% chance of a greater loss?
 
Yes - this is apparently inconsistent with the definition of VaR given in Core Reading, although the definition given only says the degree of confidence "is normally" expressed as 1 - p.

The Examiners report makes no reference to your alternative, so we can't know whether you would have been marked down - though I'd hope the examiners would be lenient.

Note that ordinarily the VaR is about what might happen in the worst small % of cases, so I'd tend to that interpretation.
 
I see... that's helpful anyway, thanks for getting back before the exam!
 
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