SOCIOL 182 Lecture Notes - Lecture 11: Risk-Free Interest Rate, Normal Distribution, Standard Deviation
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Afe ba(cid:374)k (cid:894) b(cid:895) (cid:272)al(cid:272)ulates (cid:862)value at risk(cid:863) at (cid:1013)(cid:1004)% (cid:272)o(cid:374)fide(cid:374)(cid:272)e le(cid:448)el (cid:373)o(cid:374)thl(cid:455). B esti(cid:373)ates (cid:373)ea(cid:374) a(cid:374)d sta(cid:374)da(cid:396)d deviation of monthly returns on its portfolio to be 2% and 6%, respectively. In any normal distribution the value that marks. 10% percentile is situated 1. 28 standard deviations on the left of the mean. (1. 28 can be found in the tables of standard normal distribution). Thus, return of -5. 68% or lower only can be realized with 10% chance. With 90% certainty, we can say that 8. 52 million is the most the portfolio can lose in value in one month. Suppose you were recently hired as an assistant to the portfolio manager at sb. Having collected past data on returns of the securities comprising current portfolio of safe bank, you noticed that 5% of monthly returns on the portfolio in your sample fall below -10%.
