Explanation:
In historical simulation, the VaR at the 95% confidence level is often calculated using the worst observation. With observations, this corresponds to the th worst observation.
Ordering the ten worst returns: 1st: -3.2% 2nd: -2.6% 3rd: -2.4% 4th: -2.0% 5th: -1.9% 6th: -1.7%
The daily VaR is therefore -1.7%. Using the square root of time rule to find the monthly VaR (assuming 20 trading days in a month): Monthly VaR = Daily VaR
Option A is the closest.
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Q.1 You are assigned to calculate the daily VaR for the stock of Fooda Inc. You are provided with the following data for the ten worst returns of the stock during the last 100 days: -1.2% -0.7% -3.2% -2.6% -2.4% -2.0% -1.9% -1.7% -1.5% -1.5%
Which of the following is closest to the monthly VaR for Fooda Inc. using a confidence level of 95%? (Assume there are 20 trading days in a month.)
A
-7.6%
B
-3.2%
C
-1.2%
D
-1.4%
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