R Exercises | Programming Exercises for Finance in the R Language

Distributions: Exercises

1. Value-at-Risk (VaR). You are told to find the 92% VaR threshold for a porfolio with profits that are normally distributed with mean of 3 and a standard deviation of 7.

In R, the function qnorm(percentile, mean, sd) finds the boundary value associated with a given percentile of the normal distribution.

Use qnorm() to compute the VaR threshold.



                              # Define the percentile.
                              percentile <- ___

                              # Define the mean.
                              mean_profit <- 3

                              # Define the standard deviation.
                              sd_profit <- ___

                              # Calculate the VaR threshold.
                              var_threshold <- qnorm(___, mean = ___, sd = ___)



                                # Define the percentile.
                                percentile <- 0.08

                                # Define the mean.
                                mean_profit <- 3

                                # Define the standard deviation.
                                sd_profit <- 7

                                # Calculate the VaR threshold.
                                var_threshold <- qnorm(percentile, mean_profit, sd_profit)


                              test_error()
                              test_object("percentile", incorrect_msg="Remember that you want to find the threshold associated with the lowest 8% of returns.")
                              test_object("sd_profit", incorrect_msg="Check the problem description for the correct value of the standard deviation.")
                              test_object("var_threshold", incorrect_msg="Did you enter all of the arguments to `qnorm()` correctly?")
                              success_msg("Excellent work. What would happen to `var_threshold` if you doubled the standard deviation of the profits?")

Did you set the parameters of the qnorm() correctly?

Previous Exercise Next Exercise