A risk manager simulates the Worst Case Scenario (WCS) data in the following table using 10,000 random vectors for time horizons,H, of 50 and 100.
Time Horizon = HH = 50H = 100
Expected number of Z < -2.331.002.00
Expected number of Z < -1.652.006.00
Expected WCS-2.02-2.88
WCS 1 percentile-3.55-4.02
WCS 5 percentile-2.43-3.37
Which of the following statements is (are) CORRECT?
I.The one percent value-at-risk (VAR) is –2.33.
II.The one percent WCS for a holding period of 100 is -2.33.
III.One percent VAR is expected to be exceeded twice over 100 trading periods.
A. I only.
B. I and III.
C. II only.
D. I, II and III.
Answer:B
The one percent VAR assuming normality corresponds to -2.33 and over the next 100 trading periods a return worse than -2.33 is expected to occur two times.