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FRM Part I · FRM Exam Part I · Calculating and Applying VaR

Which of the following is a correct statement about the parameters used to specify a VaR measure?

Raising the confidence level while keeping the horizon fixed increases VaR under a normal distribution, because the cutoff moves further into the tail and the z-value grows. Horizon scaling uses the square root of time, and longer horizons raise VaR.

  1. ARaising the confidence level while holding the horizon fixed increases VaR for a normal distributionCorrect
  2. BUnder the square-root-of-time rule, VaR over a longer horizon is the one-day VaR multiplied by the number of days
  3. CVaR is unaffected by the choice of holding period if returns have zero mean
  4. DA 95% VaR is always larger than a 99% VaR for the same portfolio

Explanation

A higher confidence level moves the cutoff further into the loss tail, so a larger z gives a larger VaR. The square-root rule multiplies by the square root of days, not days. VaR grows with the horizon even with zero mean, and 99% VaR exceeds 95% VaR.

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