VaR quiz 3

madhuri1682
Good Student
Posts: 29
Joined: Thu Oct 04, 2012 2:09 am

VaR quiz 3

Postby madhuri1682 » Sat Nov 03, 2012 12:53 pm

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?
Choose one answer.
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

Postby vandana.jain » Sat Nov 03, 2012 5:10 pm

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

madhuri1682
Good Student
Posts: 29
Joined: Thu Oct 04, 2012 2:09 am

Re: VaR quiz 3

Postby madhuri1682 » Sun Nov 04, 2012 2:30 pm

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

Postby content.pristine » Tue Nov 06, 2012 5:05 pm

That's right Vandana 8-)

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!
8-)

madhuri1682
Good Student
Posts: 29
Joined: Thu Oct 04, 2012 2:09 am

Re: VaR quiz 3

Postby madhuri1682 » Tue Nov 06, 2012 7:06 pm

yes..thank u..:)


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