Financial Risk Manager Part 2

Get started today

Ultimate access to all questions.

Explanation:

To evaluate statement C (1-day 99% VaR difference):

Normal VaR = $W_0 \times (Z_{99\%} \times \sigma - \mu) = 1,000,000 \times (2.326 \times 0.025198 - 0.00079365) = 57,816$ .
Lognormal VaR = $W_0 \times (1 - e^{\mu - Z_{99\%} \times \sigma}) = 1,000,000 \times (1 - e^{0.00079365 - 2.326 \times 0.025198}) = 1,000,000 \times (1 - e^{-0.057816}) = 56,177$ .
The difference is $57,816 - 56,177 = 1,639 \approx ` $1`,640$ .

This confirms that the Normal 99% VaR exceeds the Lognormal 99% VaR at the 1-day holding period by approximately $1,640, making statement C the true statement.

Explanation:

To evaluate statement C (1-day 99% VaR difference):

Normal VaR = $W_0 \times (Z_{99\%} \times \sigma - \mu) = 1,000,000 \times (2.326 \times 0.025198 - 0.00079365) = 57,816$ .
Lognormal VaR = $W_0 \times (1 - e^{\mu - Z_{99\%} \times \sigma}) = 1,000,000 \times (1 - e^{0.00079365 - 2.326 \times 0.025198}) = 1,000,000 \times (1 - e^{-0.057816}) = 56,177$ .
The difference is $57,816 - 56,177 = 1,639 \approx ` $1`,640$ .

This confirms that the Normal 99% VaR exceeds the Lognormal 99% VaR at the 1-day holding period by approximately $1,640, making statement C the true statement.

Comments (0)

No comments yet.

Q.33 A risk manager at a mid-sized bank wishes to estimate the market risk of a portfolio by employing both the normal and the lognormal distribution assumptions. The manager has gathered the following data on the portfolio:

Daily mean: 0.00079365

Daily volatility: 0.025198

Trading days in a year: 252

Current portfolio value: `$1`,000,000

Which of the following statements is true?

Exam-Like

Community

SSix

Last updated: July 5, 2026 at 07:21

Normal 95% VaR is greater than Lognormal 95% VaR at the 1-day holding period by $36,745

Normal 95% VaR is greater than Lognormal 95% VaR at the 1-year holding period by $800

Normal 99% VaR is greater than Lognormal 99% VaR at the 1-day holding period by $1640

Normal 99% VaR is greater than Lognormal 99% VaR at the 1-year holding period by $421,255