Consider stock A and stock B whose future returns one year from now are normally distributed....

Consider stock A and stock B whose future returns one year from now are normally distributed. Return on A has a mean of 8% and a standard deviation of 20%. Return on B has a mean of 4% and a standard deviation of 10%. Then, 5%-VaR (5%-lowest return) of stock A is lower than that of stock B.

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We see that 5% VaR for A=8%-1.645*20%=-24.900%

We see that 5% VaR for B=4%-1.645*10%=-12.450%

jeff jeffy answered 1 year ago

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