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Hi David,

Generally in 95% VaR, it is said that it can cause 5% exceptions say in 252 tests ~12.6 or 13. Normally we take 1.65 normal deviate and check it out. In the calculations in Jorion table 6.2 calculates this using the scheme to be less than 20. The number is actually 19.4.

1. why is the difference between counting off 5% of n. like 13, versus calculating, 19.4, based on confidence?

2, Also, the calculation is based on 2 tails of 1.96. The 95% confidence in VaR is one tail. Is this being done because the z score is cumulative so should it not use one tail of 1.65? When should we use one tail and when 2 tails? is this because z score estimation of the binomial distribution is not accurate?

Will really appreciate your clarification.

Thanks.

Generally in 95% VaR, it is said that it can cause 5% exceptions say in 252 tests ~12.6 or 13. Normally we take 1.65 normal deviate and check it out. In the calculations in Jorion table 6.2 calculates this using the scheme to be less than 20. The number is actually 19.4.

1. why is the difference between counting off 5% of n. like 13, versus calculating, 19.4, based on confidence?

2, Also, the calculation is based on 2 tails of 1.96. The 95% confidence in VaR is one tail. Is this being done because the z score is cumulative so should it not use one tail of 1.65? When should we use one tail and when 2 tails? is this because z score estimation of the binomial distribution is not accurate?

Will really appreciate your clarification.

Thanks.

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