Please help me solve this problem; If the portfolio is 500,000, with the significance level of 1%, what would be the absolute value of the portfolio with the 99% confidence level? Refer to table in the given picture for your reference in answering the above question.
Please help me solve this problem; If the portfolio is 500,000, with the significance level of 1%, what would be the absolute value of the portfolio with the 99% confidence level? Refer to table in the given picture for your reference in answering the above question.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Please help me solve this problem;
If the portfolio is 500,000, with the significance level of 1%, what would be the absolute value of the portfolio with the 99% confidence level?
Refer to table in the given picture for your reference in answering the above question.
Transcribed Image Text:What is value at risk (VaR)?
According to Kenton 2019, the Value at Risk (VaR) is a statistical tool to
measure and quantifies the level of financial risk within a firm,
portfolio or position over a specific time frame, this tool is commonly
used by investment and commercial banks to determine the extent and
occurrence ratio of potential losses in their institutional portfolios.
Methods of Calculating Value at Risks (VaR)
Date
17-01-2020
Return/loss of portfolios
-0.395%
1.
2.
14-03-2020
-0.374%
3.
08-03-2020
-0.367%
4.
20-02-2020
-0.342%
5.
23-01-2020
-0.270%
6.
11-01-2020
-0.262%
7.
27-03-2020
-0.262%
8.
14-02-2020
-0.248%
9.
17-02-2020
-0.248%
10.
28-02-2020
-0.234%
11.
12-03-2020
-0.224%
12.
31-01-2020
-0.215%
There are 2 main methods of calculating VaR:
1. Historical Simulation Method- According to Risk Net, it is a
method of calculating Value at Risk (VaR) that uses historical
data to assess the impact of market moves on a portfolio.
Transcribed Image Text:Table above is the example set of data with corresponding rate of
portfolio loss and returns per day. The data are arranged from the
highest to the lowest.
Question: What would be the absolute value if the portfolio is 1,000,000
with the 5% significance level?
VaR= p(r)
Where;
Pis the portfolio and;
R is the returned/loss
VaR= p(r)
1,000,000x-0.270
So the VaR (5%) of the portfolio is just 2,700 in a day.
VaR= -2,700
Significance Level
Confidence Level
VaR
Mean
..
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