VaR is the worst expected loss over a specified time period
with a given level of confidence.
Problem Set 6: #5
Effigy Co. stock has a mean annual return of 15% and a
standard deviation of 30%. What is the largest expected
percentage loss in the coming year with a probability of
95%? What is the corresponding VaR for a $200,000
portfolio comprised solely of Effigy stock?
Since this example has a non-zero mean return, we must use
000
,
69
$
000
,
200
$
345
.
000
,
200
$
15
.
495
.
000
,
200
$
15
.
30
.
65
.
1
VaR
W
z
Note: Percent
loss is 34.5%
Problem Set 6: #6
Your stock portfolio is currently worth $350,000. Your
portfolio has an annual standard deviation of 20%. What is
the daily standard deviation in percent and in dollars?
In dollars, we get .0126 x $350,000 = $4,410 per day.
What is the 10-day 99% VaR?
%
26
.
1
0126
.
0
252
20
.
252
year
day
or
493
,
32
$
000
,
350
$
03984
.
33
.
2
000
,
350
$
10
0126
.
33
.
2
VaR
W
z

** Subscribe** to view the full document.