The DEAR of a bank's trading portfolio has been estimated at $5,000.It is assumed that the daily earnings are independently and normally distributed. What is the 10-day VAR?

Question

Quizplus · Accepted Answer

The 10-day VAR can be calculated using the formula:

VAR = DEAR * z * sqrt(time)

where z is the z-score for the desired confidence level and time is the number of trading days in the period.

Assuming a 95% confidence level, the z-score is 1.645.

time = 10 days

VAR = $5,000 * 1.645 * sqrt(10) = $15,811.

Therefore, the answer is (C) $15,811.

The DEAR of a Bank's Trading Portfolio Has Been Estimated