How to interpert SaR

[afterworkguinness]

I'm confused at the interpretation of Surplus at Risk. Does it tell us the worst expected deficit over the holding period for a given confidence level?

That understanding seems to fit with Jorion's statement "Taking the deviation between the expected surplus and VAR, we find that there is a 1 percent probability (since VAR is computed at 99%) that over the next year the surplus will turn into a deficit of $70 million (220 less 150) or more."

It seems off to me that we have a surplus of 150 million now and given a surplus volatility of only 9.4% we are 99% confident that we will have a deficit of 220 million.

I'm also curious why SaR is calculated against assets and not surplus.

 

[afterworkguinness]

Reading a bit further I found the extra example @David Harper CFA FRM CIPM worked up which for a surplus of $20 and SaR of $18 says "worst expected, surplus drops $18.1 ..worst expected, +$1.9 funded."

This seems to tell us that with 1-alpha % probability we can expect the surplus to be current surplus - SaR but in Jorion's example he says with alpha % probability we can expect that.

 

[afterworkguinness]

This thread helped clarify my understanding: https://forum.bionicturtle.com/threads/sar.5879/

Also, re my confusion about 1- confidence probability of deficit of the amount of expected surplus - SaR, I realized both Jorion and David's examples are saying the same thing, just the phrasing in Jorion threw me off whereas David's was more clear.