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A ____ significance level implies a ____ confidence interval implies a ____ absolute value at risk.

May 15, 2017

A lower significance level ⇒ greater confidence interval ⇒ higher absolute VAR

For VAR we only care about the lower tail of the distribution.

5% VAR ⇒ 90% Confidence Interval ⇒ 1.65 standard deviations below expected return

2.5% VAR ⇒ 95% Confidence Interval ⇒ 1.96 standard deviations below expected return

.5% VAR ⇒ 99% Confidence Interval ⇒ 2.58 standard deviations below expected return

 

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