Question #2
Reading: Reading 37 Measuring and Managing Market Risk
PDF File: Reading 37 Measuring and Managing Market Risk.pdf
Page: 1
Status: Correct
Correct Answer: A
Question
Delphia fund is a EUR100 million portfolio of euro zone equities. The expected daily return and standard deviation are 0.116% and 0.38% respectively. The 5% daily VaR is EUR511,000. Assuming 21 trading days per month, The 5% monthly VaR is closest to:
Answer Choices:
A. €435,000
B. €3,801,000
C. €829,446
Explanation
Monthly return = 0.00116 x 21 = 0.02436.
Monthly standard deviation = 0.0038 x (21)0.5 = 0.0174
5% Monthly VaR = [Expected monthly return (1.65 x Monthly standard
deviation)] × Portfolio value = [0.02436 – (1.65 x 0.0174)] x 100million = €435,000