Which of the following best describes the concept of marginalVaR of an asset in a portfolio:
A . Marginal VaR is the value of the expected losses on occasions where the VaR estimate is exceeded.
B . Marginal VaR is the contribution of the asset to portfolio VaR in a way that the sum of such calculations for all the assets in the portfolio adds up to the portfolio Va
D . Marginal VaR is the change in the VaR estimate for the portfolio as a result of including the asset in the portfolio.
E . Marginal VaR describes the change in total VaR resulting from a $1 change in the value of the asset in question.
Answer: D
Explanation:
The correct answer is choice ‘d’
Marginal VaR is just the change in total VaR from a $1 change in the value of the asset in the portfolio. All other answers are incorrect. Mathematically, it is expressed as follows, where VaRp is the VaR for the portfolio, and Vi is the value of the asset in question.
Other answers describe other VaR related concepts such as incremental VaR, Component VaR and Conditional VaR.
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