CMA Final · Risk Management in Banking and Insurance · Market Risk Management
A portfolio has a daily return standard deviation of Rs 2 crore in value terms and a mean of zero. Using the normal distribution with z = 2.33 for 99% confidence, what is the one-day parametric VaR?
The one-day parametric VaR is Rs 4.66 crore. With zero mean, VaR equals the z-value of 2.33 multiplied by the standard deviation of Rs 2 crore. It represents the loss that should not be exceeded on 99% of days.
- ARs 4.66 croreCorrect
- BRs 2.33 crore
- CRs 0.86 crore
- DRs 9.32 crore
Explanation
VaR = z x sigma = 2.33 x 2 = Rs 4.66 crore. Using z alone (Rs 2.33 crore) ignores the multiplication by sigma; doubling the correct answer (Rs 9.32 crore) has no basis in the formula.
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