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Dear sir
like to seek your clarification whether we will be tested to calculate VAR figue?
thanksDear John,
Could you please clarify how the figure [/b]1.65 was derived in the example given in June 2011 Revision. Thank you beforehand.“[/i]A bank has estimated that the expected value of its portfolio in 2 weeks time will be $50M, with a standard deviation of $4.85M. At the 95% confidence level, what is the VaR?”
The answer is: 50M – 1.65 x 4.85M = $42M
From the normal distribution tables 1.64 standard deviations has a 5% chance of being exceeded.
So there is a 95% chance of being more than the average/expected less 1.64 standard deviations .This still does not explain it though. Where does the 1.65 for a 5% chance and 2.33 for a 1% chance come from? is is expected that we know this? do we perform a calculation? if so what? it refers to the standard devation table – this does not work for me, unless I am using it wrong? I have searched everywhere for answers and all I get is the same to figures, 1.65 and 2.33 – where do they come from??!! : (
a reply would be mucg appreciated.
thanks vicky
take your standard normal distribution table and work backward
5%=0.5-0.05=0.45
from tables you get 1.645 for the value of 0.45
i hope it helps you.thank you so much slobodanm…. you’ve helped me out GREATLY! I almost gave up on this… but your approach has solved it all for me. God Bless you!
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dear sir,
from the table 0.45 gives .1736 ??
where does this 1.645 come from?- Topics: 0
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I JUST READ THE OTHER DISCUSSIONS REGARDING VAR!
& discovered your detailed explanation regarding 1.64 nd 2.33 valuesTHANK YOU LOADSSSSSSSS!!
🙂Hi,
could some one please post that link here. I don’t understand this 1.64 if 5%and 2.33 if 1%
If you look up 1.64 standard deviations in the normal distribution tables, then you get 0.4495
What this means is the 44.95% (virtually 45%) of all values lie between the average and 1.64 standard deviations away from the average.
Because the distribution is symmetrical, it means that 50% of all value lie below the average.So….it means that 5% (50 – 45) will be below 1.64 standard deviations from the average (or that there is a 5% chance that it will be below this figure).
If you look up 2.33 in the tables and follow the same logic you should find you end up with 1%
Thank you , for explaining this sir . I have p7 on monday, had been revising that from last 2 days .
Is there any chance you could give us 10-15 questions from Kaplan revision kit that would cover most of the topic on last day.
I am not very confident about swaps, collars, floors, caps i guess that is going to take most of my time last day.
You are welcome.
Concentrate on past questions – especially the section A ones.
Do not spend to much time on the exams from 2009 and 2010 (they were a previous examiner).- Topics: 0
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Yes….i found a great difference in questions from 2010- june 2013
sir can u mention some important questions that i should solve in these 2 days??? as i remmber solving all the current questions ….so plz mention some which i should do again??!!
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