Explanation:
To find the 95% historical VaR from 100 days of data, we need the cutoff point where 5% of the worst returns lie below it. Depending on the convention, this is typically taken as the 6th worst return (since 5 returns are strictly worse).
Sorting the worst returns in ascending order:
Taking the 6th worst return, the 95% Daily VaR is -1.7%. To scale this to a monthly VaR (assuming 20 trading days in a month), we use the square root of time rule:
Option A is the closest and correct.
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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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