“What is the 5% DAILY VAR if the ANNUAL expected return is 9.55% and ANNUAL standard deviation is 14.87%, using Analytical Method of calculating VAR?” I’m trying to figure out the number of days you will have in the denominator while converting annual expected return and standard deviation into daily expected return and standard deviation. Will you have the same # of days in the denominator (252) for both OR 365 for expected return and 252 for standard deviation?
you use 250 days for the year daily return = 9.55% / 250 = .0382% daily std dev = 14.87% / 250^1/2 = .9405% daily VaR at 5% = .0382% - 1.65(.9405%) = -1.5136%
“daily VaR at 5% = .0382% - 1.65(.9405%) = -1.5136%” Wait, dumb question, but how do you interpret this? VaR is supposed to be a dollar amount.
$ or %.
If you had $500M portfolio, take $500M * 1.5136% = $7.568M daily VAR
So you can be 95% sure that you will lose at least 1.5136% on any given day? Or there is a 5% chance that you will lose at least 1.5136% on any given day in that year?
Risk Management is gimme points on this test