Consider your portfolio losses exceeded your 97% one-day VaR on 20 days during the past two years. Assume 255 days in each year. Using normal approximation to binomial, conduct a two- tailed hypothesis test on whether the model is correct using 5% significance level.

(a) Specify the acceptance/rejection region for the hypothesis test.

(b) Calculate the z-score corresponding to the observed number of exceptions.

(c) State your conclusion (reject or not reject).

(d) Find the p-value for this hypothesis test.

Answer rating: 100% (QA)

a According to 5 Significance Level the hypothesis test is accep... View the full answer