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
