How To Fix TE425 - Historical period / Confidence level too low, VaR = 0

SAP Error Message - Details

• Message type: E = Error

• Message class: TE - Market Risk Management

• Message number: 425

• Message text: Historical period / Confidence level too low, VaR = 0

What causes this issue?

While using the VAR algorithm 2 (VAR from absolute profit/loss) or the
VAR algorithm 4 (VAR from absolute profit/loss with a doubling of
measured values), a small historical time period and a low confidence
level can lead to the case that no VAR in the true sense of the word
can be calculated. In this case the VAR is equal to 0.

System Response

The system issues an error message and will not allow you to continue with this transaction until the error is resolved.

How to fix this error?

Error message extract from SAP system. Copyright SAP SE.

Smart SAP Assistant

• What is the cause and solution for SAP error message TE425 - Historical period / Confidence level too low, VaR = 0 ?

  The SAP error message TE425, which states "Historical period / Confidence level too low, VaR = 0," typically occurs in the context of Value at Risk (VaR) calculations within SAP's Risk Management module. This error indicates that the parameters set for the historical period or confidence level are not appropriate for generating a valid VaR result, leading to a calculated VaR of zero.
  Causes:
  
  
  Insufficient Historical Data: The historical period selected may not have enough data points to calculate a meaningful VaR. For example, if the historical period is too short, there may not be enough variability in the data.
  
  
  Low Confidence Level: The confidence level set for the VaR calculation may be too low, which can lead to a situation where the calculated risk is effectively zero.
  
  
  Data Quality Issues: There may be issues with the underlying data, such as missing values or outliers, which can affect the calculation.
  
  
  Incorrect Configuration: The settings for the VaR calculation may not be configured correctly, leading to inappropriate results.
  
  
  Solutions:
  
  
  Adjust Historical Period: Increase the historical period to ensure that there is enough data for the calculation. A longer historical period can provide a more reliable estimate of risk.
  
  
  Modify Confidence Level: Review and adjust the confidence level to a more appropriate value. Common confidence levels for VaR calculations are 95% or 99%.
  
  
  Check Data Quality: Ensure that the data used for the VaR calculation is complete and accurate. Clean the data to remove any outliers or missing values that could skew the results.
  
  
  Review Configuration Settings: Check the configuration settings in the SAP system for the VaR calculation. Ensure that all parameters are set correctly according to the organization's risk management policies.
  
  
  Consult Documentation: Refer to SAP documentation or help resources for specific guidance on configuring VaR calculations and understanding the implications of different settings.
  
  
  Related Information:
  
  
  Value at Risk (VaR): A statistical measure used to assess the level of risk associated with a portfolio or investment. It estimates the potential loss in value over a defined period for a given confidence interval.
  
  
  Risk Management in SAP: SAP provides various tools and modules for managing financial risk, including market risk, credit risk, and operational risk. Understanding how these tools work can help in troubleshooting issues like TE425.
  
  
  SAP Notes and Support: If the issue persists, consider checking SAP Notes for any known issues or patches related to the error message TE425. You can also reach out to SAP support for further assistance.
  
  
  By addressing the underlying causes and implementing the suggested solutions, you should be able to resolve the TE425 error and obtain a valid VaR calculation.