var topic from swescheser

Good Student
Posts: 22
Joined: Sat Apr 26, 2014 7:29 am

var topic from swescheser

Postby sessiljoseph » Sun May 11, 2014 5:26 am

you are the risk manager of a fund you are using the historical method to estimate Var.You find that the worst 10 daily returns for the fund over the period of last 100 trading days are-1%,-0.3%,-0.6%,-0.2%,-2.7%,-0.7%, -2.9%,-0.1%,-1.1%,-3% what is the daily var for the portfolio at 95% confidence level
a, -0.6%
my doubt is after arranging them in ascending order like,-3,-2.9,2.7,-1.1,1.0,0.7
95/100*100=95 days so -3 is your 100day while -0.7 is coming as 95 day
while in the text book they are considering -1 so my doubt which is correct to take the 5th observation or count the 6th observation
please explain

Finance Junkie
Posts: 946
Joined: Wed Apr 09, 2014 6:28 am

var topic from swescheser

Postby edupristine » Tue Jul 08, 2014 7:21 am

To calculate daily VaR using historical method, first arrange the losses from worst to best.

So, in our example: -3, -2.9, -2.7, -1.1, -1, -0.7, -0.6, -0.3, -0.2, -0.1

Now at 95% confidence interval, the daily VaR would be 1% and not 0.7%. You should take into account 5th observation in case of 95% confidence interval.

The worst 5% of all daily returns are -3, -2.9, -2.7, -1.1, -1

Hence, we can say, 95 % of the time, the daily losses cannot exceed -1%. Put another way, we expect with 95% confidence that our gain will exceed -1%.

Return to “FRM Part I”


Global Association of Risk Professionals, Inc. (GARP®) does not endorse, promote, review or warrant the accuracy of the products or services offered by EduPristine for FRM® related information, nor does it endorse any pass rates claimed by the provider. Further, GARP® is not responsible for any fees or costs paid by the user to EduPristine nor is GARP® responsible for any fees or costs of any person or entity providing any services to EduPristine Study Program. FRM®, GARP® and Global Association of Risk Professionals®, are trademarks owned by the Global Association of Risk Professionals, Inc

CFA Institute does not endorse, promote, or warrant the accuracy or quality of the products or services offered by EduPristine. CFA Institute, CFA®, Claritas® and Chartered Financial Analyst® are trademarks owned by CFA Institute.

Utmost care has been taken to ensure that there is no copyright violation or infringement in any of our content. Still, in case you feel that there is any copyright violation of any kind please send a mail to and we will rectify it.