New Enroll here to Join NaBFID Analyst Into Class on May 6

    Question

    Which of the following is a method of measuring the loss

    in the value of the portfolio over a given period and for a distribution of historic return?
    A ECL Correct Answer Incorrect Answer
    B LGD Correct Answer Incorrect Answer
    C PD Correct Answer Incorrect Answer
    D VaR Correct Answer Incorrect Answer
    E VIX Correct Answer Incorrect Answer

    Solution

    Value-at-risk (VaR) is a summary statistic that quantifies the potential loss of a portfolio. It is a method of measuring the loss in the value of the portfolio over a given period and for a distribution of historic return VAR statistic has three components - a relatively high level of confidence (typically either 95% or 99%), a time period (a day, a month or a year) and an estimate of investment loss (expressed either in absolute or percentage terms). However, at a 99% confidence level what VAR really means is that in 1% of cases (that would be 2-3 trading days in a year with daily VAR) the loss is expected to be greater than the VAR amount.

    Practice Next

    Relevant for Exams: