hard · Principles of Finance

If the daily 1% VaR is $2.5 million, what does this signify?

1. The portfolio is guaranteed not to lose more than $2.5 million in 99% of cases.
2. There is a 1% probability that the portfolio will lose $2.5 million or more in a single day.
3. The average loss on the worst 1% of days is $2.5 million.
4. The portfolio's expected return is -$2.5 million at a 1% confidence level.

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