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FRM Part II · FRM Exam Part II · VaR and Risk Budgeting in Investment Management

A two-asset portfolio has a normal-based 1-day 99% VaR of USD 2.0 million. Asset A is USD 60 million and has a component VaR of USD 1.4 million. What is the marginal VaR of Asset A per dollar invested, and the percentage of total VaR it contributes?

Marginal VaR equals component VaR divided by position size: 1.4 million over 60 million is about 0.0233 per dollar. Its share of total VaR is 1.4 divided by 2.0, or 70 percent, because component VaR measures the contribution to the portfolio total.

  1. A0.0233 per USD; 70%Correct
  2. B0.0233 per USD; 30%
  3. C0.0429 per USD; 70%
  4. D0.0143 per USD; 70%

Explanation

Marginal VaR = component VaR / position = 1.4m / 60m = 0.02333 per dollar. Contribution = 1.4/2.0 = 70%. Option 3 inverts the ratio (60/1.4). Option 4 wrongly divides by the total VaR-based figure. Option 2 uses the wrong percentage (1 minus the share).

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