$(20$ marks$)$

You are holding a portfolio of two stocks, with information as follows:

$($a$)$ If the correlation of returns between the two stocks is $0\mathrm{.}3,$ what is the one$-$day

liquidity$-$adjusted value$-$at$-$risk $($VaR$)$ of your portfolio at $99\%$ confidence level?

$(10$ marks$)$

$($b$)($Ignore your portfolio.$)$ The current stock price of KBM is $$50.$ Assume you had just sold

a $1-$month at$-$the$-$money put option $($for $1,000$ shares$)$ on KBM$.$ What would be your

worst payoff in one month at $99\%$ confidence level?

$($Assume $21$ trading days in a month.$)$

$(10$ marks$)$