Question

Suppose we estimate the one-day 97.5% VaR from 1,100 observations as 5 (in millions of dollars). By fitting a standard distribution to the observations, the probability density function of the loss distribution at the 97.5% point is estimated to be 0.04.

a) The standard error of the VaR estimate is ___________million.

Answer 1

a)

gvien confidence level (p) = 97.5%

number of observations(n) = 1100

Probability density = 0.04

standard error =

standard error = [(0.025*0.975) / 1100]^(1/2) / 0.04

Standard error = 0.1176836 (rounded to 7 decimals)