IAI Actuarial Core Principles · Economic Modelling · Measures of investment risk
A portfolio's one-year loss is normally distributed with mean 0 and standard deviation Rs 50 crore. Using the standard normal 99% point of 2.326, what is the 99% Value at Risk?
The 99% VaR is Rs 116.3 crore. For a normal loss with zero mean it equals 2.326 times the standard deviation, so 2.326 multiplied by Rs 50 crore gives 116.3 crore.
- ARs 50.0 crore
- BRs 58.2 crore
- CRs 99.0 crore
- DRs 116.3 croreCorrect
- Rs 232.6 crore
Explanation
VaR = mean + 2.326 x standard deviation = 0 + 2.326 x 50 = 116.3 crore. Using 1.165 or 50 alone ignores the quantile multiplier; 232.6 wrongly uses 100 as the standard deviation.
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