VaR is the worst expected loss over a specified time period with a given level

# Var is the worst expected loss over a specified time

• Notes
• 3

This preview shows page 1 - 3 out of 3 pages.

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.