Answered step by step
Verified Expert Solution
Question
1 Approved Answer
4. Suppose we have a risky asset with random return R. We have defined R to be, Si - So R= So N Now we
4. Suppose we have a risky asset with random return R. We have defined R to be, Si - So R= So N Now we introduce the log-return, which is defined as R = In (). In this question, assume that R N(a, g). (i) Show that R=R-1. (ii) Calculate VaRo.95 for an investment of 150. Remember that if X N(4,0) then ex is lognormally distributed with parameters fi and o?. You may use that for a standard normal random variable 0-(0.05) = -1.6449, where o denotes the CDF. 4. Suppose we have a risky asset with random return R. We have defined R to be, Si - So R= So N Now we introduce the log-return, which is defined as R = In (). In this question, assume that R N(a, g). (i) Show that R=R-1. (ii) Calculate VaRo.95 for an investment of 150. Remember that if X N(4,0) then ex is lognormally distributed with parameters fi and o?. You may use that for a standard normal random variable 0-(0.05) = -1.6449, where o denotes the CDF
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started