Financial Risk Manager Part 2

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It is natural to ask about the accuracy of the VaR estimate. In order to evaluate this, we can compute the confidence intervals around the estimate whereby the true VaR should be within the interval a high percentage of the time. Which of the following statements correctly describes the approaches used to compute the confidence intervals?

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It is desirable to base the confidence interval on the single point of the quantile estimate, and this view supports the use of asymptotic standard error of a quantile to construct the interval.

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The use of order statistics starts with the pseudo history of portfolio value changes (denoted by ΔV), and reorders them from highest to lowest so that ΔV(1) ≥ ΔV(2) ≥ … ≥ ΔV(T).

The advantage of using order statistics over using bootstrap procedure is that the order statistics approach does not assume independence of the changes in portfolio value over time.

Under the bootstrap procedure, the distribution of VaR is the sampling distribution, and the confidence interval can be calculated from the ordered VaR values.