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5 - Suppose you have invested $1000 in shares of APPL, $2000 in shares of DELL and have purchased 20 shares of a Call option
5 - Suppose you have invested $1000 in shares of APPL, $2000 in shares of DELL and have purchased 20 shares of a Call option on APPL and 10 shares of a Call option on DELL. Your portfolio is denoted 2. Analysts estimate that the one day mean and standard deviation of APPL stock returns are 1=0 and 1=0.01 while the mean and standard deviation for DELL are 2=0 and 2=0.02. The correlation between APPL and DELL returns is =0.5 and the 99 percentile of a standard normal is 2.326. a) Compute the 10-days value at risk at 99% of a portfolio (1) comprised solely of APPL and DELL shares (no options). b) Compute the 10-days value at risk at 99% of portfolio 2 (including options) via a linear approximation. Assume the delta of a call option on APPL is 0.4 and the delta of a call option on DELL is 0.5. The current market prices of APPL and DELL stocks are $100. c) Assume the mean daily return of APPL stock was incorrectly estimated, the correct estimate is 1=0.001. Compute the 10 -days value at risk at 99% of portfolio 2 (including options)
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