Work the VaR Problem 9 of Chapter 2 assuming prices follow jump diffusion with normal sized jumps.
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Work the VaR Problem 9 of Chapter 2 assuming prices follow jump diffusion with normal sized jumps.
Data given in problem 9
Find the VaR at the 99 % level over 2 months by simulation for a portfolio of two stocks with parameters: for the first: S0 = 20, μ =3 %, volatility= 26 %, for the second: S0 = 40, μ =1 %, volatility= 33 %. Assume that the stocks are correlated, variously, ρ = 0.9, ρ = 0.2, ρ = −0.8.
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