A portfolio's daily returns over the last 200 trading days include a single worst loss of -3.5% and a second worst loss of -3.1%. The average daily return was 0.05% with a standard deviation of 1.2%. If the current portfolio value is $10,000,000, what is the historical 1-day 99% VaR for this portfolio based on these observations?

Question: A portfolio's daily returns over the last 200 trading days include a single worst loss of -3.5% and a second worst loss of -3.1%. The average daily return was 0.05% with a standard deviation of 1.2%. If the current portfolio value is $10,000,000, what is the historical 1-day 99% VaR for this portfolio based on these observations?

Answer options:

• $350,000 ✅ $310,000
• $120,000
• $50,000

Correct answer: $310,000

Explanation: Historical VaR at the 99% confidence level for 200 observations means identifying the 1st percentile. 1% of 200 is 2 observations. The 1-day 99% VaR would be the second worst loss in the dataset, which is -3.1%. Thus, the VaR is 3.1% of $10,000,000 = $310,000.