Which of the following is a recognized limitation of value at risk (VaR) as a risk measure?

Correct answer: B) It does not indicate how large losses may be in the cases where the VaR threshold is exceeded

Explanation

VaR states the maximum loss expected at a given confidence level over a set period, in currency terms, and is commonly computed for portfolios. However, it says nothing about the size of losses in the tail beyond the threshold, and it often relies on normal distribution assumptions that understate extreme events. Measures such as conditional VaR (expected shortfall) and stress testing address this gap.