(R26 EOC9) Can someone explain the solution for this problem? I don't understand the one given in book.

CFA Level III Derivatives
#1

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#2

0.005 + 0.005 = 0.01 = 1%

so 1% VAR = -40% (max Loss that could occur)

for 5% => you get -10%

#3

ok so is this understanding currect? I keep adding the probabilities and when it reaches desired level, that’s where I’ll find my VAR?

Thanks.

#4

It’s minimum loss right?

#5

yes, should be a typo, min loss.