I am currently completing a multiple choice question that has stumped me.
An asset has its price and its corresponding probability described as: 100, 0, -50, -70 and -90 with probabilities 50%, 12%, 6.5%, 1% and 0.5% respectively. Calculate the absolute value at risk with a loss probability of 2%.
To begin, we have not been given the complete probability distribution of the price of the asset; the probabilities add up to 70%. Is it still possible to calculate the 98% VaR?
It doesn't make too much sense to me as we don't know what's happening at the loss tail of the distribution. For all we know a loss of -100,000,000 can occur with probability 30%.
There is a choice of "None of the answers is correct", which is what I am leaning for.
I am hoping for a better explanation.