Explanation:
From the lognormal derivation,
αVaR = Pₜ₋₁ − P* = Pₜ₋₁(1 − exp[μᵣ − σᵣZₐ])
Applying the formula in the question we have:
95% VaR = 1 − exp(0.079 − 0.312 × 1.645) = 0.3522
99% VaR = 1 − exp(0.079 − 0.312 × 2.326) = 0.4762
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Q.2819 Let’quuo assumes that the geometric returns Rₜ are normally distributed with a 0.079 mean and 0.312 standard deviations. Further assumption is that the portfolio is currently worth 1 unit. Calculate the 95% and 99% lognormal VaR.
A
The 95% VaR is 0.8951 and the 99% VaR is 0.2351.
B
The 95% VaR is 0.88526 and the 99% VaR is 0.56898.
C
The 95% VaR is 0.3522 and the 99% VaR is 0.4762.
D
The 95% VaR is 0.8951 and the 99% VaR is 0.56898.