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Keen to understand how BASEL derived the 1 in a 1000 year event from the CI 99.9%:

The confidence level is fixed at 99.9% (0.999) (i.e. a bank is expected to suffer losses that exceeds its capital on average, once in a thousand years).

Anyone know how? I am interested to calculate scenarios based on events that can occur in, lets say, 1 in 10,000 years. What should be the CI be?

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  • $\begingroup$ The you can use a confidence level of 99.99% (0.9999) $\endgroup$ – Lliane Mar 11 '20 at 1:45
  • $\begingroup$ ah ok. So if I go 0.99999 then it is 1 in 100000 years? What about if CI is 0.5 or 0.8 for example? What event would that be? $\endgroup$ – eemrunn Mar 11 '20 at 1:47
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    $\begingroup$ CI of 50% means you have 50% chance of losses exceeding capital on any given year. CI of 80% you have 20% chance. Probability = 1 - CI here $\endgroup$ – Lliane Mar 11 '20 at 7:43
  • $\begingroup$ CI of 0,8 would mean a loss that exceeds capital once in 5 years (1 - 0,8 = 0,2, i.e. 2/10 = 1/5) $\endgroup$ – simzoor Mar 11 '20 at 8:27
  • $\begingroup$ Perfect! I get the idea now. Thanks both! $\endgroup$ – eemrunn Mar 11 '20 at 21:01

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