Dear Ken Garrett,
Question
A portfolio of shares has a mean value of $10m with a daily standard deviation of $1m.
To the 99% confidence level, what is the value at risk over 9 days?
Answer
Std deviation over 9 days is $1m x square root of 9 = $3m
The z value for the 1/49 split is 2.33
Therefore there is only a 1% chance that the value of the portfolio will be 2.33 x 3 = 7.
Therefore there is a 99% chance that the value of the portfolio will be at
least $3m (= 10 – 7)
The above answer $ 3m is given by you. But your test answer is $ 7.00 Which one is correct?
B/regards,
Phuong
CIMA Forums
P3 Test (Test question No 03 of Chapter 4)
9y ago#1The VAR is what you risk losing. Here it is 7m. If you start with 10 and risk losing 7 you risk being left with only 3.
(The sentence above should have said that there is only a 1% chance of the value falling by more,than 7m)
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