
Explanation:
Step 1: Calculate the 95% return.
This means that the 5% tail is represented by the six worst returns. The 95% confidence level is the sixth-worst return (i.e., β8.72%).
Step 2: Use the return representing the 95% confidence level to calculate VaR.
\text{VaR } 95\% = \`$27`,250Although it is a negative figure, VaR is usually shown without the minus sign.
(Book 4, Module 47.1, LO 47.c)
Question 57
Assume that a risk manager wants to calculate VaR for a stock index futures contract using the historical simulation approach. The current price of the contract is $1,250, and the multiplier is 250. What is the 95% VaR of the position, given the data extract of returns from the previous 120 trading days below?
Returns data: β10.20%, β9.80%, β9.70%, β9.00%, β8.95%, β8.72%, β8.14%, β7.90%, β¦, 8.60%, 8.90%, 9.40%, 9.90%, 10.20%, 10.45%
A
$28,125.
B
$27,250.
C
$26,344.
D
$25,438.
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