A portfolio includes a position of $1 million invested in DEF shares. The price volatility ofthe shares over one week is 0.5%. The bid-ask spread is a constant 0.6%. What is the l-week liquidity adjusted VAR (LVAR) for this position at the
95% confidence level?
A. $1 ,000.
B. $5,250.
C. $8,000.
D. $11,250.
Answer:D
LVAR = ($1,000,000 1.650.005) + 0.5 ($1 ,000,0000.006)=$11,250.