Liquidity Var

[itsyourz]

Hi

in 08 Practice exam part I, no.36, which is about LVaR

I think the solution has an mistyping

it says, estimating liquidity peice is V * 0.5 ( mean - 1.96sigma)

then putting given numbers in that, i got 244,000 , which is different from 344,000 in solution

that minus should be changed into plus in my opinion

because liquidity risk is caused by wider spread,

therefore V*0.5( mean + 1.96sigma ) must be right

and then i can get the right answer

is it ok?

oh. one more thing! why 1.96 is put into 95% var calculation?? Garp's mistake?

they made it so many times..

suk

 

[David Harper CFA FRM]

Hi suk,

See my prior on this. But you don't need too, really: I agree with you on both points.
(in GARP's defense, the source Culp reading has a +/- error, which you note)
The good news is: nicely done, to spot *both* errors is to be in full command of the issue! I am blushing with pride that my customer has such an eagle eye

David