confidence level

@snake681218 said:
dear tutor:

I learned that with 95% confidence level, we can get 1.645in our VaR calculation, can you advise, how can we get this number (1.645)from the standard normal distribution table? I do not know how to use the table to get this data. thanks a lot.

What you do is this:

For 95% confidence, we need to know the number of standard deviations where the is a 5% chance of being below the average.

There is a 50% chance of being above average and 50% chance of being below average, and so the limit for their being a chance of being 5% below is 45% away from the average (50% – 5%).

So you look in the tables and find how many standard deviations give an answer of 45% or 0.4500.

If you look at the tables, 1.64 standard deviations gives an answer of 0.4495, and 1.65 standard deviations gives an answer of 0.4505 so for 0.4500 it is somewhere between the two – approximately 1.645 (approximate, because in fact it is not linear).

Using the same logic, for 99% confidence you want an answer of 49% (or 0.49). (50% – 1% = 49%)

From the tables, you will see that 2.33 standard deviations gives an answer of 0.4901, which is close enough 🙂

I stumbled upon this through Google. Thanks John, you’re my big savior! 🙂

Amazing, I been taught by 2 different teachers used complicated method. But this method of calculating confident level is superb. Thank you very much.

this is the most useful site ive ever come across…always find solutions to all my study problems here…thanku john…this method is super easy.. God bless u 🙂