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April 8, 2020 at 4:04 pm
If question ask for the confidence level of 88% which is (0.380) so do we use 1.175 SD using the table of normal distribution. please confirm
John Moffat says
April 8, 2020 at 4:18 pm
Yes – that is correct 🙂
April 8, 2020 at 6:28 pm
Thanks for the prompt help
April 9, 2020 at 7:31 am
You are welcome 🙂
December 3, 2019 at 7:59 am
Sir, you have calculated the Standard deviation as root 6, for 6 years. How would you annualize the standard deviation if the expected value of a portfolio is given in two weeks time?
December 3, 2019 at 2:29 pm
Will root of 2/52 work in such a situation? Assuming 52 weeks in a year.
October 22, 2019 at 5:05 am
Hello, i can’t understand how you get the figure 1.645 for a confidence level of 95%.
Please help. Thank you.
October 22, 2019 at 6:13 am
Because of symmetry, 50% is above the mean and therefore for a 95% confidence level, 45% must be below the mean.
We then use the tables ‘backwards’ to see how many std devn’s give a probability of 0.45.
If you look along the 1.6 row in the tables, you will find that 1.64 gives a probability of 0.4495 and 1.65 gives a probability of 0.4505. So the figure we want is between the two.
October 23, 2019 at 6:54 am
thank you loads John
October 23, 2019 at 2:31 pm
November 4, 2019 at 12:45 pm
Dear Sir, really sorry to ask once again about 1.645. It’s clear for me about 95%-50%, but what I lost is why we look at line 1.6 in the st.distribution table ;( Thank you for any comments.
November 5, 2019 at 7:27 am
It is because we are working backwards through the tables. and finding the value of z that gives an answer in the tables of 0.45
November 5, 2019 at 8:46 pm
November 6, 2019 at 6:59 am
October 16, 2019 at 8:59 am
Dear Sir, Calculations are all about deviation, confidence and then look up table, not any concerned from the annual return. So these returns (2,4M or 14,4M) are just for reference and comment, aren’t they? Thank you very much.
October 16, 2019 at 4:22 pm
But you need those figures to then be able to calculate the value at risk for the particular confidence level.
April 30, 2019 at 1:10 pm
Hello Sir, I did try this chapter from the study texts but didn’t understand it at all…they use a sort of formula for VAR which is horrible. Thanks a lot for such understandable lecture.
May god bless you sir.
May 1, 2019 at 4:06 am
Thank you for your comment 🙂
April 23, 2019 at 2:46 pm
Thank you for this lecture, it’s the first time I’m doing SD. Please may I ask when calculating the VAR over the project’s life, why is the average 6 x $2.4m = $14.4m? As soon as I see “over the life” I think annuity and discounting. Although I realise there is no discount factor in the question, I’m thinking what if part of a bigger question? Many thanks
April 24, 2019 at 6:45 am
I don’t understand why you think discounting – Value at Risk has nothing to do with discounting, and the question will specifically ask for the VaR if it is required.
We multiply by 6 because the question states that the project has a life of 6 years (I assume that you have downloaded the free lecture notes).
April 25, 2019 at 3:27 pm
April 25, 2019 at 3:29 pm
Please let me know if we will ever need to calculate the standard deviation or will it always be given. I have seen in some textbook that there is a very long way to calculate it.
February 6, 2019 at 8:09 am
Example 3, I know how to read the distribution table, but how did you get the 1.50 and 2.58? Thank you
February 6, 2019 at 3:39 pm
As I say in the lecture, I am only using 1.50 and 2.58 to illustrate how to use the tables. I could have used any figures – all I am doing is explaining how to use the tables!
November 8, 2018 at 6:57 am
Ok Sir, you are perfectly correct of course. I forgot the part where 50 is deducted from 99. Thank you so much for the lecture. Understood.
November 8, 2018 at 6:51 am
Hello Sir, half of 99 is 49.5, so should we be looking at .495 in the table?…just making sure.
November 3, 2018 at 9:11 am
Hi Sir, I have a question relating to the normal distribution. Back in my earlier studies of normal distribution, when there is a 95% confidence level, we used to split the 5% (2.5% on each side). Same with a 97.5% confidence level (1.25% on each side). How come we only take the whole 5% on the negative side?
November 3, 2018 at 9:34 am
Because we are only concerned about the amount being lower, not higher.
(You are referring to what is called a two-tail test, where the variable may be higher or lower. This is a one-tailed test.)
October 23, 2018 at 6:50 am
Understood thank you
October 23, 2018 at 7:10 am
October 23, 2018 at 6:24 am
I m confused as to what table he is referring to…?how did he get 1.645 value ?
The normal distribution tables that are given to you in the exam (and that are printed in our free lecture notes). I do explain this in the lecture!
October 19, 2018 at 10:25 pm
Very understandable. Thank you.
October 13, 2018 at 10:57 pm
Very happy with this lecture! Thanks a lot
October 14, 2018 at 10:22 am
October 2, 2018 at 9:33 pm
I just want to say thankyou, After watching the BPP lectures and reading the books I was confused still on Std Deviations. Your lecture has made it so much clearer.
October 3, 2018 at 7:20 am
Thank you for for your comment 🙂
August 24, 2018 at 12:35 pm
Hi John, the concept has been well explained in the lecture, the assumption is the spread is a normal distribution and hence the graph is symmetrical and hence there is a 50% chance of the return being higher or lower than the average return. Our solution of the distance is based on this assumption.
In the exam, can they ask us to calculate the VAR, where the spread is asymmetrical?
August 24, 2018 at 3:43 pm
No, that is not possible. VaR always (in real life as well as in exams) assumes a normal distribution (which is symmetrical).
(That is one of the scary things about banks using it in real life (which they do!). Partly it is not necessarily normally distributed, but also even if it is and there is only a 1% chance of there being problems, that is 1 year in 100 and that 1 year could be next year 🙂 )
August 24, 2018 at 5:21 pm
Thanks, it is huge relief to know that. 🙂
August 25, 2018 at 9:42 am
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