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CMA Final · Strategic Financial Management · Risks in Financial Market

A portfolio of Rs 10 crore has a daily standard deviation of 1.5% of value. Assuming normally distributed returns and zero mean, what is the 10-day 99% VaR using z = 2.33 (square-root-of-time rule, take sqrt(10) = 3.16)?

The 10-day 99% VaR is about Rs 1.105 crore. Daily deviation is Rs 0.15 crore, scaled by the square root of 10 gives Rs 0.474 crore, and multiplying by 2.33 gives the loss that should be exceeded only 1% of the time.

  1. ARs 1.105 croreCorrect
  2. BRs 0.350 crore
  3. CRs 0.700 crore
  4. DRs 2.330 crore

Explanation

Daily SD = 1.5% x 10 crore = Rs 0.15 crore. 10-day SD = 0.15 x 3.16 = 0.474 crore. VaR = 2.33 x 0.474 = Rs 1.105 crore. Rs 0.350 crore is the 1-day VaR (2.33 x 0.15) and not scaled for time.

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