There is an example in the online tutorials that I am a bit confused about. example X = 1-year return in $ on an investment X = 5,000 prob 0.9 -5,000 prob 0.05 -10,000 prob 0.04 -20,000 prob 0.01 answer A: the solution says the 1-year 99% VaR = $10,000 I guess they get this from 5,000-5,000-10,000 = -10,000 as the respective probabilities 0.9+0.05+0.04 = 0.99. However I don't understand why the solution isn't B: the 1-year 99% VaR = $20,000 as we know the probability of getting a loss of 20,000 is 0.01, therefore can we not say 'We are 99% confident that losses will not exceed $20,000 next year"? Please if someone could explain this to me / the difference in A and B that would be greatly appreciated. Thanks in advance.
You can be 100% confident that you won’t get a loss bigger than 20,000 because the probabilities there add up to 1.
