Suzanne Evans
Well-Known Member
Questions:
200.1. Sam observes a one-day 95% value at risk (VaR) then assumes i.i.d. normal (parametric) returns in order to scale the VaR over the following four sets of horizons and confidence levels. Which is inconsistent with the others?
a. 5-day 99.0% VaR = $16.1 million
b. 10-day 99.0% VaR = $17.9 million
c. 20-day 95.0% VaR = $17.9 million
d. 20-day 99.0% VaR = $25.3 million
200.2. Jane writes an out-of-the-money (OTM) call option with a one-year term and a strike price of $30.00 when the current trading price of the underlying, non-dividend-paying stock is $26.00. The volatility of the stock is 46.0% per annum and the risk-free rate is 4.0%. There are 250 trading days in the year. If Jane assumes stock returns are i.i.d. normal and short-term drift (mu) rounds to zero, which is nearest to the ten- (10-) day, 95.0% delta-normal value at risk (VaR) of the short call option position?
a. $0.33
b. $1.97
c. $3.68
d. $5.12
200.3. Joe has a long position in a 10-year zero coupon bond with a face value of $100 and a yield (YTM) of 8.0% with annual compounding. The daily yield volatility is 30 basis points and, for convenience, Joe assumes the daily yield is normally distributed. Joe is only interested in a linear (duration-based) value at risk (VaR). Which is nearest to the one-day 99.0% linear VaR of the bond position?
a. $1.40
b. $2.12
c. $3.00
d. $3.24
Answers:
200.1. Sam observes a one-day 95% value at risk (VaR) then assumes i.i.d. normal (parametric) returns in order to scale the VaR over the following four sets of horizons and confidence levels. Which is inconsistent with the others?
a. 5-day 99.0% VaR = $16.1 million
b. 10-day 99.0% VaR = $17.9 million
c. 20-day 95.0% VaR = $17.9 million
d. 20-day 99.0% VaR = $25.3 million
200.2. Jane writes an out-of-the-money (OTM) call option with a one-year term and a strike price of $30.00 when the current trading price of the underlying, non-dividend-paying stock is $26.00. The volatility of the stock is 46.0% per annum and the risk-free rate is 4.0%. There are 250 trading days in the year. If Jane assumes stock returns are i.i.d. normal and short-term drift (mu) rounds to zero, which is nearest to the ten- (10-) day, 95.0% delta-normal value at risk (VaR) of the short call option position?
a. $0.33
b. $1.97
c. $3.68
d. $5.12
200.3. Joe has a long position in a 10-year zero coupon bond with a face value of $100 and a yield (YTM) of 8.0% with annual compounding. The daily yield volatility is 30 basis points and, for convenience, Joe assumes the daily yield is normally distributed. Joe is only interested in a linear (duration-based) value at risk (VaR). Which is nearest to the one-day 99.0% linear VaR of the bond position?
a. $1.40
b. $2.12
c. $3.00
d. $3.24
Answers: