Juanita is deciding whether to buy a suit that she wants, as well as where to buy it. Three stores carry the same suit, but it i
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Solution :
<u>Historical simulations Var</u>
The lowest return shows the of lower tail of the 'distribution' of
historical returns. The lowest return is (-0.0010) is the
of daily VAR that we would conclude that there is
of chance of the daily loss exceeding
or
.
<u>Delta Normal VAR</u>
To locate the value of VAR, we can use cumulative z-table. In this table we can look for the significance level of the VAR.
Suppose for example, if we want a VAR, we look in the table that is closest to (1 significant level) or the 1 - 0.01 = 0.9900. We can find 0.9901 and it lies at the intersection of 2.3 in left margin and also 0.03 in column heading.
Now adding the z-value in left hand margin, and the z-value at top of column where 0.9901 lies. So we get 2.3 +0.03 = 2.33, and the z-value coinciding with 99% VAR is of 2.33
Here, is the expected 1 day return on portfolio
= 0%
VP = (value of portfolio)
z = corresponding with desired level of significance =
σ = standard deviation of 1 day return = 0.000246
= -0.057318