Final answer:
To estimate the 10-day VaR from a one-day VaR of 253,385, you multiply the one-day figure by the square root of the time horizon ratio (approximately 3.162), giving you an estimated 10-day VaR of about 800,789.67.
Step-by-step explanation:
The question you've asked pertains to the calculation of Value at Risk (VaR) over a longer time horizon based on the known one-day VaR figure. VaR is a widely-used risk management tool that estimates the potential loss in value of a risk-bearing financial asset or portfolio over a defined period for a given confidence interval. Assuming normal market conditions and a linear scaling of risk, the typical approach to scale VaR from one day to 10 days would involve multiplying the one-day VaR by the square root of the time horizon ratio.
In this case, for a 10-day VaR estimation based on a one-day VaR of 253,385:
- Calculate the square root of 10 (which is approximately 3.162).
- Multiply the one-day VaR by this factor: 253,385 x 3.162.
- This will give you the approximate 10-day VaR.
Therefore, the 10-day VaR is estimated to be around 253,385 x 3.162 = 800,789.67, assuming the above conditions hold true.