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In many bpp solutions they say that “a 99% confidence level requires the value at risk to be within 2.33 standard deviations from the mean”
This 2.33 is then used to work out the VAR
My question is How do we find this 2.33 figure in the exam?
Do we use calculator to work it out the or is it on one of the exam allowable tables?Thanks
You get it from the normal distribution tables.
The way you get it is to subtract 50% from 99%, which gives 49% (or 0.49).
Then you look up in the tables for the number of standard deviations that gives an answer of 0.49. If you have a look then you will find the nearest is 2.33.
(The reason for subtracting 50% is that the normal distribution is symmetrical and therefore there are 50% on either side. For 99% in total, then if there are 50% on one side there are only 49% on the other side.)
You are working backwards – you need to find how many SD’s give an answer in the tables of 0.49.
If you look up in the tables for 2.33 SD’s then you will find that the figure in the tables is close to 0.49.
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