Question

7. You have accumulated 76 daily returns for your $150,000,000 portfolio. After ranking the returns from the highest to lowest, you identify the lowest six returns as: -0.0011, -0.0019, -0.0025, -0.0034,-0.0096, and -0.010 i. Calculate the daily 5% VaR (in both percent and dollar terms) using this data history VARS- 0039-11.645 x ii. What does the VaR you computed mean?

Answer 1

ans i) daily 5% VaR in percent term is the 4th lowest return among 76 data because 5% of 76 is 3.8 thus we will take forth lowest data to calculate percent VaR = -.25%

daily 5% VaR in dollar terms = $150,000,000 * -.25%

= -$375,000

Ans ii) VaR: company can lose maximum $375,000 in a day with 5% confidence level.