It may be silly but I am freezing on the calculation.
In the CAFI 2013 Am exam, there is a question regarding VAR calculation.
Capital 30 sends its largest client a weekly VAR estimate using a probability of
5%. Currently this estimate is GBP 0.8 million, so Capital 30 has advised the
client to be prepared for losses greater than this amount up to five weeks every
The correction for the comment is :
The client should expect losses greater than GBP 0.8 million as often as 8 weeks every three years [calculated as 0.05 x 3 years x 52 weeks per year = 7.8].
My question is why did we add the 0.05 in the calculation. When we want to get the weekly var from the annual one we divide the E(R) by 52 and stdev. by (sq rt of 52) without including the 0.05.
Failure will never overtake me if my determination to succeed is strong enough!
Study together. Pass together.
Join the world's largest online community of CFA, CAIA and FRM candidates.