Confidence level

The probability, such as 95% or 99%, that a loss or estimate stays within a stated limit. A higher level pushes the cut-off further into the tail.

Where you will meet it

Confidence level comes up in 52 learning outcome notes across the FRM syllabus. A few of them:

• Banks
  FRM Part I · Financial markets and products

  “The confidence level is chosen to match a target credit rating.”

• The Building Blocks of Risk Management
  FRM Part I · Foundations of risk management

  “It is often measured as the standard deviation of losses, or as the loss at a high confidence level minus EL.”

• Hypothesis Testing
  FRM Part I · Quantitative analysis

  “A one-sided test at α puts the whole α in one tail, so it corresponds to a two-sided interval with this confidence level: Confidence = 1 − 2 × α.”

• Measures of Financial Risk
  FRM Part I · Valuation and risk models

  “Here φ(z) is the standard normal density at the VaR quantile z, and c is the confidence level.”

All terms beginning with C · FRM glossary

GARP does not endorse, promote, review, or warrant the accuracy of the products or services offered by Charta Learning, nor does it endorse any pass rates claimed by Charta Learning. Further, GARP is not responsible for any fees or costs paid by the user to Charta Learning. FRM® and GARP® are registered trademarks owned by the Global Association of Risk Professionals, Inc. The questions, explanations and study notes are written for this product and are not GARP curriculum material.