CMA Final · Strategic Financial Management · Risks in Financial Market
A portfolio manager at an Indian fund holds equities worth ₹50 crore. The daily standard deviation of portfolio returns is 1%, and returns are assumed to be normally distributed. Using a 95% one-tailed confidence level (z = 1.65), what is the one-day parametric Value at Risk?
One-day parametric VaR is ₹82.5 lakh. It equals the portfolio value of ₹50 crore multiplied by the daily standard deviation of 1% and the 95% z-value of 1.65. This means that on a normal day the loss should not exceed this amount with 95% confidence.
- A₹82.5 lakhCorrect
- B₹50.0 lakh
- C₹260.9 lakh
- D₹8.25 lakh
Explanation
Parametric VaR = portfolio value × daily SD × z = 50 crore × 0.01 × 1.65 = ₹0.825 crore, or ₹82.5 lakh. ₹50 lakh ignores the z-factor. ₹260.9 lakh scales the figure to ten days by multiplying by √10, which the question does not ask for.
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