One-Day Value at Risk, Second Instance

Statistics

Risk · Value at Risk

Easy

Daily P&L is normally distributed with zero mean and $1.5 million standard deviation. Using

z = 2.33

, estimate the one-day 99% VaR.

Hint 1

For a mean-zero normal P&L, VaR at level $1 - α$ is $z_{α} \times σ$ .

Hint 2

Multiply the given z-quantile by the standard deviation.

Show worked solution

1. Apply the normal VaR formula
$VaR_{99%} = z \times σ = 2.33 \times $1.5 million$ .
2. Compute
$2.33 \times 1.5 = 3.495$ .
$$3.495 million$

Answer: $3.495 million

1. Apply the normal VaR formula