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Suppose that the gain from a portfolio during six months is normally distributed with a mean...

Suppose that the gain from a portfolio during six months is normally distributed with a
mean of $3.5 million and a standard deviation of $12 million. Calculate and interpret the
VaR of the portfolio with a 99% confidence level.

Solutions

Expert Solution

Given about a portfolio,

Mean during last 6 months = $3.5 million

Standard deviation = $12 million

The VaR for the portfolio with a time horizon of six months and confidence level of 99% is

VaR = u - 2.33*SD = 3.5 - 2.33*12 = -24.46 or $24.46 million

So,Var says that there are 1% chance that loss from this portfolio is greater than $24.46 million

jeff jeffy answered 2 years ago
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