## VaR quiz 3

Good Student
Posts: 29
Joined: Thu Oct 04, 2012 2:09 am

### VaR quiz 3

Consider a portfolio with a one-day VAR of \$1 million. Assume that the market is trending with an autocorrelation of 0.1. Under this scenario, what would you expect the two-day VAR to be?
a. \$2 million
b. \$1.414 million
c. \$1.483 million
d. \$1.449 million
The answer is \$1.483 million

how to calculate?

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vandana.jain
Finance Junkie
Posts: 41
Joined: Tue Jul 24, 2012 4:56 pm

### Re: VaR quiz 3

i think it can be calculate like-
1mn * sqroot of (2+.2)....

Good Student
Posts: 29
Joined: Thu Oct 04, 2012 2:09 am

### Re: VaR quiz 3

thanks..but what is the concept behind it?

content.pristine
Finance Junkie
Posts: 356
Joined: Wed Apr 11, 2012 11:26 am

### Re: VaR quiz 3

That's right Vandana

variance(T, T-1) = variance(T) + variance (T-1) + 2*correlation*StdDev(T)*StdDev(T-1)
We need to now assume that the Variances remain same over the 2 days
= 2*variance(T) + 2*correlation * variance(T)
= 2*variance(T) * [1 + correlation]
The standard deviation would just be its square root..

Hope this helps!

Good Student
Posts: 29
Joined: Thu Oct 04, 2012 2:09 am

yes..thank u..