When assessing tail risk by looking at the 5% worst-case scenario, the VaR is the
A) most realistic, as it is the most complete measure of risk.
B) most pessimistic, as it is the most complete measure of risk.
C) most optimistic, as it is the most complete measure of risk.
D) most optimistic, as it takes the highest return (smallest loss) of all the cases.

Question

Quizplus · Accepted Answer

Value at Risk (VaR) for the 5% worst-case scenario takes the highest return (smallest loss) among those worst cases, making it the most optimistic measure compared to other methods that might consider more extreme losses.

When Assessing Tail Risk by Looking at the 5% Worst-Case