Hi all, For this question the examiner's report states that the "99.5% VaR is higher (i.e. a greater loss) for the derivative, so based on this measure the investor may prefer to invest in the stock index". From the earlier parts: VaR for the stock index is 742.66 while the VaR for the derivative is 730. So shouldn't we say that VaR is higher for the stock index? Thanks in advance for your help!
The issue here is the non-standard way in which the VaR has been calculated in parts (i) and (iii). For example, it's not clear why the "1-" is present in "800 * (1-7.1669%) = $742.66" as this doesn't match the definition in the Core Reading. Check out the ASET for details.
