The following information relates to questions 11.1-11.4 Joey Ryzen, senior risk manager and Nancy Morgan, analyst at Stephano AMC are discussing the VAR measure of risk management. Joey states, Its important to understand the three points in the VaR concept. (1) VaR can be measured in either currency units or in percentage terms, (2) it tells us how much one can lose, and (3) it references a time horizon, losses that would be expected to occur a certain time. Joey the asks Nancy, What does a VaR of $15 million at 5% for one month indicate? Joey and Nancy then talk about the advantages of VaR as a risk management tool. Nancy comments, "The advantages of VaR are: (1) it can be used for performance evaluation, (2) it provides an estimate of losses during a worst-case scenario, and (3) it is an objective method rather than a subjective method. Joey next calculates the VaR of one of the company's equity funds; the Stephano Delta fund. He estimates the dollar VaR at the 5% level using the parametric method with the following inputs: Exhibit 1: Data for Stephano Delta fund Portfolio Value $600.0 Million Daily Expected Return 0.05% Daily Expected Volatility 1.20% Joey and Nancy then discuss other methods of estimating VaR. Joey states, "Historical simulation to estimate VaR is useful however it has a limitation that mean and variance estimates could be biased". Nancy says, "Monte Carlo method of estimating VaR has the advantage that the number of necessary simulations is determined by the parameters".