Thread starter
#1

Dear David,

I have two questions after reading the above-mentioned page (http://www.bionicturtle.com/learn/article/value_at_risk_var_2007_frm_part_7_cash_flow_at_risk_cfar/)

please kindly correct me if I am wrong:

1) When you say that :"For example, assume our company's expected cash flow is $10 million with a volatility of $1 million. Further, assume we consider cash flow below $8 million to be a shortfall. Then we can say either:Our 95% CFaR is $8.36 million: $10 million - ($1 million x 1.645) = $8.36 million", I think here CFVAR refers to absolute VAR.For example, if sigma is 8 million instead of 1 million,

then 95% CFaR is 3.16 million: (8 x 1.645) - 10 = 3.16 million.

2) when you earlier give the formula of CAR: CFAR= Prob(E(c) - C > CAR) = p%

And here we are measuring Cash flow CAR as the relative VAR, with the p% as the significance level, C as realized cash flow, E(c) as expected cash flow. So in my input, that means CFAR = 10 - (-3.16) = 13.16 million,

Thank you very much for your correction!

Cheers!

Liming

I have two questions after reading the above-mentioned page (http://www.bionicturtle.com/learn/article/value_at_risk_var_2007_frm_part_7_cash_flow_at_risk_cfar/)

please kindly correct me if I am wrong:

1) When you say that :"For example, assume our company's expected cash flow is $10 million with a volatility of $1 million. Further, assume we consider cash flow below $8 million to be a shortfall. Then we can say either:Our 95% CFaR is $8.36 million: $10 million - ($1 million x 1.645) = $8.36 million", I think here CFVAR refers to absolute VAR.For example, if sigma is 8 million instead of 1 million,

then 95% CFaR is 3.16 million: (8 x 1.645) - 10 = 3.16 million.

2) when you earlier give the formula of CAR: CFAR= Prob(E(c) - C > CAR) = p%

And here we are measuring Cash flow CAR as the relative VAR, with the p% as the significance level, C as realized cash flow, E(c) as expected cash flow. So in my input, that means CFAR = 10 - (-3.16) = 13.16 million,

Thank you very much for your correction!

Cheers!

Liming

## Stay connected