## FRM-VAR

anbu.edu
Finance Junkie
Posts: 205
Joined: Mon Feb 04, 2013 3:35 pm

### FRM-VAR

A risk manager simulates the Worst Case Scenario (WCS) data in the following table using 10,000 random vectors for time horizons, H, of 50 and 100.

Time Horizon = H H = 50 H = 100
Expected number of Z < -2.33 1.00 2.00
Expected number of Z < -1.65 2.00 6.00
Expected WCS -2.02 -2.88
WCS 1 percentile -3.55 -4.02
WCS 5 percentile -2.43 -3.37
Which of the following statements is (are) CORRECT?

The one percent value-at-risk (VAR) is –2.33.
The one percent WCS for a holding period of 100 is -2.33.
One percent VAR is expected to be exceeded twice over 100 trading periods.
A) I only.
B) II only.
C) I, II and III.
D) I and III.
The one percent VAR assuming normality corresponds to -2.33 and over the next 100 trading periods a return worse than -2.33 is expected to occur two times.

Source: Schewser

Is my understanding about (III) is correct?-Since H=100 is given as 2 , over the next 100 trading periods a return worse than -2.33 is expected to occur two times.

lokesh1
Good Student
Posts: 17
Joined: Tue Apr 09, 2013 10:22 am

### FRM-VAR

Hey Anbu

Since for H=100, Expected number of Z < -2.33 is equal to 2, over the next 100 trading periods a return worse than -2.33 is expected to occur two times.