Calculation of One-Day 95% VaR

A large institutional investment manager is reviewing its portfolio and aiming to better understand its risk exposure. The manager is particularly focused on the impact of potential losses over a specified time horizon with a certain confidence level. To achieve this, the manager is considering employing the Value at Risk (VaR) methodology as a risk management tool.

The investment manager analyzes historical price data and finds that returns fit a normal distribution. They decide to calculate the one-day 95% VaR of the portfolio, which has a current value of $10,000,000. Based on their calculations, they estimate the daily volatility of the portfolio returns to be 2%.

With this information, what is the one-day 95% VaR of the portfolio?