Hi, The following is an excerpt from 2020 FRM Level 1 Valuation and Risk Models Chapter 1 Measures of Financial Risks. Can someone explain if there is a formula that can be used to calculate VaR for a given confidence level when there is a range of possible equally likely outcomes (Note: the learning objective of this chapter doesn't necessarily state "Calculate VaR" but the below example is not clear in terms of arriving at the answer). For example, one can also say the probability that the loss will lie between 18.5 and 19 is 0.5/50 = 1%. I guess my question is why in this example, they've chosen 20. Is this because the maximum loss is 20? (Note: I could not find a similar thread but if it's part of an existing thread, feel free to move it to that thread please)
As a second simple example, assume the result of an investment with a uniform distribution where all outcomes between a profit of 30 and a loss of 20 are equally likely. In this case, the VaR with a 99% confidence level is 19.5. This is because the probability that the loss will lie between 19.5 and 20 is 0.5/50 = 1%. (Note that we divide the range of losses we are interested in (0.5) by the total range of losses (50) because all outcomes are equally likely.
As a second simple example, assume the result of an investment with a uniform distribution where all outcomes between a profit of 30 and a loss of 20 are equally likely. In this case, the VaR with a 99% confidence level is 19.5. This is because the probability that the loss will lie between 19.5 and 20 is 0.5/50 = 1%. (Note that we divide the range of losses we are interested in (0.5) by the total range of losses (50) because all outcomes are equally likely.