@jlahuerta @Flashback makes an excellent point that three different approaches are possible, but this is a revision of an older flawed practice question (see

https://www.bionicturtle.com/forum/...-part-1-exam-2-question-24-garp11-p1-24.4488/)

... but the

**best modern answer** follows Dowd's approach (who is

*assigned* in P1.T4 and therefore should be the default) and that would be the

**third worst **among 100; i.e., 100*2% + 1 = 3rd worst.

This choice locates the full 2.0% tail "outside" the VaR quantile and would be consistent with a statements such as "we are 98% confident that [or "on 98% of days"] the daily loss

**will not exceed 412m**" or equivalently "on 2.0% of days, we expect the loss to be

**greater than** 412m." The latter is consistent with Jorion's

**P(L > VaR) ≤ 1 - c**; in this case, P(L > 412m) ≤ (1-0.98). Notice that if we

*instead* selected the 2nd worst loss (i.e, 422), it would be consistent with a slightly different definition: P(L

**≥** 422m) ≤ (1-0.98) ≥ 2.0%. Ironically, Dowd's calculation is consistent with Jorion's definition (despite the fact that Jorion would select the 2nd worst)!

Please don't get me wrong: I absolutely agree with

@Flashback that there exist three valid approaches ... however, we spent no small amount of time educating GARP on why the best exam-type answer is the one consistent with the author assigned (ie, Dowd). Thanks!

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