Question
1. Assume a bank has a stock portfolio worth $ 2 million with an expected annual volatility of 4%. What is the Value at Risk
1. Assume a bank has a stock portfolio worth $ 2 million with an expected annual volatility of 4%. What is the Value at Risk using a 95 level of confidence? Assume N=10 for holding the period.
2. A bank holds 10-year 8% coupon Treasury bonds with a face value of $1,000,000. The current market rate is 7%. What is the 10-day VAR if the standard deviation is estimated at 35 basis points? Use a 99% level of confidence (z=2.33) and traditional pricing.
3. A bank has estimated its VAR for its bond portfolio is $25,600 and for its stock portfolio, it is $33,600. The correlation coefficient between the two portfolios is -0.25. How much VAR would be reduced if they were allowed to aggregate the VAR of the two portfolios?
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