Hi guys,
I encountered the following answer and do not know how to arrive to the answer USD$344,000 -
Consider an asset worth USD 1 million whose 95 percentile VaR is USD 100,000 (computed using the parametric method assuming the normal distribution). Suppose the bid-ask spread on the asset has a mean if USD 0.1 and a standard deviation of USD 0.3. What is the 95th percentile liquidity adjusted VaR assuming the market risk VaR and the liquidity risk piece are uncorrelated?
Thanks.