What is the difference between standard deviation and value at risk? Consider the difference between purchasing a one-year bank CD compared with purchasing a homeowner's insurance policy. Which scenario do you believe is more likely to consider value at risk over standard deviation? Explain.
What will be an ideal response?
Standard deviation measures the uncertainty about a payoff's expected return, whereas the value at risk is the worst possible scenario. The decision to purchase an insurance policy is more likely to consider value at risk. When people decide to purchase insurance, they are more likely to consider the worst-case scenario because the time horizon is an individual's lifetime. For a one-year bank CD, the worst-case scenario is less likely to occur simply because the time horizon is shorter.
You might also like to view...
If price = marginal cost at the output produced by a perfectly competitive firm and the firm is earning an economic profit, then
A) marginal revenue is less than price. B) price exceeds average total cost. C) total revenue equals total cost. D) average total cost is at a minimum.
Assuming that the demand and supply of a good have moved in opposite directions, but by the same amount, the new equilibrium would represent: a. an increase in price and an increase in quantity exchanged
b. no change in price and an increase in quantity exchanged. c. a decrease in price and a decrease in quantity exchanged. d. an indeterminate change in price, but no change in quantity exchanged.
Model Validation Council.
What will be an ideal response?
The economizing problem is essentially one of deciding how to make the best use of
What will be an ideal response?