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CMA Final · Strategic Financial Management · Risks in Financial Market

The one-day 99% VaR of a trading book is Rs 4 crore, with z = 2.33. Assuming normal returns and independent days, what is the approximate 10-day 99% VaR (use square root of 10 = 3.162)?

The 10-day 99% VaR is about Rs 12.65 crore. Under the normal and independence assumptions, VaR scales with the square root of the time horizon, so Rs 4 crore is multiplied by the square root of 10, which is 3.162.

  1. ARs 40 crore
  2. BRs 12.65 croreCorrect
  3. CRs 9.32 crore
  4. DRs 6.32 crore

Explanation

Scale by the square root of time: 4 x 3.162 = 12.648, about Rs 12.65 crore. Rs 40 crore multiplies by 10 (wrong scaling). Rs 6.32 crore uses the square root of 2.5, which is not relevant.

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