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Answer: JPY 6,320,000
The correct estimate for the component VaR of the financial asset is closest to JPY 6,320,000. This is calculated using the formula for Component VaR, which is Marginal VaR multiplied by the asset's weight (w) and the total portfolio value (W). In this case, the Marginal VaR for the financial asset is 0.03160025, the weight of the financial asset in the portfolio is 0.5 (since there are two assets each with a value of JPY 20,000,000), and the total portfolio value is JPY 40,000,000. Therefore, the calculation is as follows: Component VaR = Marginal VaR * w * W = 0.03160025 * 0.5 * JPY 40,000,000 = JPY 6,320,050 This result is rounded to JPY 6,320,000, which corresponds to option B. The other options provided are incorrect as they do not match the calculated value for the component VaR of the financial asset. Option A (JPY 4,787,000) is close to the individual VaR of the financial asset, option C (JPY 7,299,000) is close to the individual VaR of the real-estate asset, and option D (JPY 11,562,000) is close to the portfolio VaR.
Author: LeetQuiz Editorial Team
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To determine the most accurate approximation for the component Value at Risk (VaR) of a financial asset, consider the following background information:
Value at Risk (VaR) is a widely used risk measure that estimates the potential loss in value of a portfolio, asset, or investment over a defined period for a given confidence interval. It provides a probabilistic indication of the maximum expected loss over a specified time horizon under normal market conditions. Component VaR, specifically, quantifies the contribution of each individual asset within a portfolio to the overall VaR.
Given this context, what is the most precise method for calculating the component VaR of an individual financial asset within a diversified portfolio?
A
JPY 4,787,000
B
JPY 6,320,000
C
JPY 7,299,000
D
JPY 11,562,000
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