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FRM Part I · FRM Exam Part I · Common Univariate Random Variables

Daily P&L of a trading desk is normal with mean 0 and standard deviation 2 million. Using z = 2.33 for the 99% one-tailed level, what is the 10-day 99% VaR assuming independent days and zero mean?

The 10-day 99% VaR is about 14.74 million. Independent daily volatility scales with the square root of time, so 2 million x sqrt(10) = 6.325 million, multiplied by 2.33 gives 14.74 million.

  1. A4.66 million
  2. B14.74 millionCorrect
  3. C46.60 million
  4. D9.32 million

Explanation

10-day standard deviation = 2 x sqrt(10) = 6.325 million. VaR = 2.33 x 6.325 = 14.74 million. 4.66 is one-day VaR; 46.6 multiplies by 10 instead of sqrt(10).

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