00:01
To calculate the estimated 10 -day 95 % value at risk, var, for the portfolio, we can use the delta normal method under the assumption of a linear model.
00:15
Delta normal method.
00:22
The delta of the portfolio measures its sensitivity to changes in the underlying exchange rate.
00:28
So here's how to calculate var step by step.
00:33
One, convert the delta to an equivalent dollar amount.
00:40
So we get a delta dollar amount equals delta times portfolio value.
00:59
Two, calculate the standard deviation of the portfolio's daily returns, where we get standard deviation equals daily volatility times root 10.
01:20
Next, calculate the z -score corresponding to the 95 % confidence level.
01:25
Four, calculate the var using the formula var equals z times delta dollar amount times the standard deviation.
01:55
So we get the delta, sorry, maybe i should just put it in where you can see it in the problems.
02:14
Delta equals 8 .7.
02:22
Delta volatility is 0 .6%...