Hi all,
I am busy with an exercise as part of building an Economic Capital model. Suppose I quantify my Lapse_risk to be 2000, and I use the implied assumption underlying the standard formula that this comes from a normal distribution. The 1 year VAR is;-
\( \mu + \sigma \Phi ^ {-1}\left( \alpha \right)\) = 2000
then it is impossible to get these parameters.
However under the assumption of a zero mean (which I am still trying to see how it can apply to the Sep 2014 q6, as suggested by Simon James's last comment in this thread;-
http://www.acted.co.uk/forums/showthread.php?t=10584
I don't know why this will hold when the question asked for a
1 year VaR, also I thought the assumption of zero mean holds only when you can get positive and negative values in your series which doesn't seem to be the case in the question.
But suppose someone convinces me then the 1 year VAR is;-
NORMSINV(a)*\( \sigma \) = 2000, i.e 2.576*\( \sigma \) =2000, thus we have a \( N(\mu, \sigma) \) =N(0,776.39). Then I can do so many things with this information.
Click to expand...