FRM Part II · FRM Exam Part II · Estimating Market Risk Measures: An Introduction and Overview
A risk manager estimates 99% VaR for a position as 2.50 million. Using the quantile standard error formula, the estimated standard error is 0.20 million. What is the approximate 95% confidence interval for the VaR, using a critical value of 1.96?
The approximate 95% confidence interval is 2.11 to 2.89 million. It is the estimate of 2.50 million plus or minus 1.96 times the 0.20 million standard error, which is about 0.39 million on each side.
- A2.30 to 2.70 million
- B2.11 to 2.89 millionCorrect
- C1.96 to 3.04 million
- D2.40 to 2.60 million
Explanation
Interval = 2.50 ± 1.96 × 0.20 = 2.50 ± 0.392, giving 2.108 to 2.892, about 2.11 to 2.89. The 2.30 to 2.70 option uses one standard error only, and 2.40 to 2.60 uses half a standard error.
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