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##### New Member

Question:

Sam Neil, the new quantitative analyst, has been asked by portfolio manager to calculate the portfolio 1-day VAR measure based on the past 100 trading days. What will this be if worst 5 losses in the past 100 trading days are 316m, 385m, 412m, 422m,485m in USD?

The question asks what is the 1 day 98% VAR based on past 100 trading days. To my understanding the answer is the 98 observation (ranked from best to worst observation) ==> 422m USD.

However, the answer sheet indicates that the answer is "422 is the 2nd worse loss corresponding to 98% VAR. 422/sqrt(100) = 42.2 is the 1-day var." is this the correct answer, if yes why do we need to factor the 98 observation by sqrt of the number of observations?

Thank very much

Tzvi