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Measurement of Investment Risk - VaR (Discrete)

S

skharki1

Member
Investment returns (% pa), X , on a particular asset are modeled using the probability
distribution:
X Probability
-7 0.04
5.5 0.96
Calculate the 95% VaR over one year with a 95% confidence limit for a portfolio consisting of £100m invested in the asset.

The above question is given in the course note (Ch - 4 page - 11).
Can someone please explain the solution of this.
Why P(X < -7) = 0 & P(X < 5.5) = 0.04
How the above values of 0 & 0.04 is coming.
 
The question says that X can only be either -7 or 5.5, so there's zero chance of it being less than -7 or more than 5.5.
The only way for X to be strictly less than 5.5 is when X=-7, therefore P(X<5.5)=P(X=-7)=0.04.
Hope that helps
 
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