Exercise Solution 14.2

We are given q = 0.9, α + 1 = 375 and ε = .05. We calculate the ε = .05 quantile of the χ2(1,0) distribution as 3.841. Setting this equal to [14.7], we solve for X. There are two solutions: 26.65 and 49.38. Rounding down and up, respectively, we set x1 = 26 and x2 = 50. We will reject the VaR measure if X ∉ [26, 50].

 

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