Now suppose that you think the returns distribution is well approximated by a normal distribution. The normal distribution is a two-parameter distribution: mean and variance, therefore, you can estimate those parameters without any complex econometric approach.
1. Plot the histogram again, but this time add a normal density over the histogram to assess how good of an assumption normality is. (Hint: Stata’s histogram command has an option to do this automatically.)
2. Compute the Value-at-Risk at the 99% confidence level based on the estimated normal distribution of returns. Remember that the VaR is the maximum loss (or minimum returns in this case) that could occur with probability 1 ? , i.e., 1% of the cases.
3. How does the investment limit that you would establish for the trader, in dollars, compare to the limit estimated based on the empirical distribution above? pls tell me how to process in stata!!