Question

You are a Financial Manager CRC Company Ltd. in calculations of the risk values, your Company applies a VaR system at 99% (relative) VaR values on a daily basis. Over the last 500 trading days (two years) there have been five occasions when the VaR values have been breached. A subordinate comes to you with some serious concerns in relation to the current VaR calculations, arguing that they wrongly represent correlations in behavior occurring at times when the markets make large movements. He has carried out a set of alternative calculations of daily (relative) VaR values over the last two years, which also has five occasions when the VaR values have been breached.

Required:

Explain why the alternative daily VaR values may differ markedly from the values from the current system, but have the same number of VaR breaches.

Answer 1

Explaining or Illustrating alternative daily VaR values may differ markedly from the values from the current system, but have the same number of VaR breaches

The time for the views is 500 daily dealing or buying or spending days over 2 years horizon. The VaR included in the method directly uses an importance level of 99%. This interest or percent means the level of belief or faith of the administrators in measuring VaR.

This indicates the administrator assumes the most damaging loss will not pass or beat more than the consequence level. The point level is defined as managing the level of trust or faith or beliefs. At the present situation, the level of importance is 1%.
The assistant further brings out the estimation and has several values but the corresponding number of gaps or holes.
The techniques used to measure or determine or estimate the VaR. The business administrator must have used a traditional or classics simulation plan while the subordinate must have used a Monte Carlo Simulation.

The process includes generating or forming a standard for future stock value or rate or price or amount or profit returns and managing various theoretical analyses into the model.

The traditional or ancient or old plan completely re-organizes exact historical records, order from worst to best. It then concludes that the past will repeat or repeat itself, of a risk prospect or view.

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