Q 2

DEF Bank calculates its 1-day, 95% VaR as $55 million.

1. On how many days per year based on 250 trading days would DEF bank expect to lose less than $55 million? [2 mark]

2. If DEF Bank loses $55 million on a particular day, what is the likelihood that it loses more than $55 million on the next day? [1 mark]

3. Over a 100-day period, how much is the bank expected to lose on its sixth (6th) worst day of losses? [1 mark]

4. The Value-at-Risk (VaR) methodology was shown to be robust predictor of market risk during the Global Financial Crisis. Critique this statement. [2 marks]