Which one of the following Value-at-Risk measures would be most appropriate for a portfolio designed for a very risk-adverse investor? A) Prob (R_p ≤ − 0.20) = 100% B) Prob (R_p ≤ − 0.15) = 50% C) Prob (R_p ≤ − 0.10) = 25% D) Prob (R_p ≤ − 0.10) = 10% E) Prob (R_p ≤ − 0.05) = 1%

Question

Quizplus · Accepted Answer

A risk-adverse investor seeks to minimize the probability of losses. Therefore, the most appropriate Value-at-Risk measure for such an investor would be the one with the lowest probability of a large loss. Thus, out of the given options, the most appropriate choice would be E, which has a probability of only 1% of a loss greater than or equal to -5%.

Which One of the Following Value-At-Risk Measures Would Be Most