FRM Part I · FRM Exam Part I · Measures of Financial Risk
A portfolio manager estimates a one-day 99% VaR of USD 5 million. Over 250 trading days, how many days should the manager expect the loss to exceed VaR if the model is correct?
The manager should expect about 2.5 exceedances. A 99% VaR is breached with 1% probability each day, so over 250 trading days the expected number of losses greater than VaR is 250 times 0.01, or 2.5 days.
- A2.5 daysCorrect
- B5 days
- C12.5 days
- D25 days
Explanation
A 99% VaR is exceeded with probability 1%. Expected exceptions = 250 x 0.01 = 2.5 days. Twelve and a half days corresponds to a 95% confidence level, which is the wrong tail probability.
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