Question
A firm has a trading book composed of two assets with normally distributed returns. The first asset has an annual expected return of 12 percent
A firm has a trading book composed of two assets with normally distributed returns. The first asset has an annual expected return of 12 percent and an annual volatility of 30 percent. The firm has a position of $50 million in that asset. The second asset has an annual expected return of 8 percent and an annual volatility of 15 percent. The firm has a position of $30 million in that asset. The correlation coefficient between the returns of these two assets is 0.35.
Compute the standard deviation of this firms portfolio.
Compute its 1 percent annual VaR.over 2 weeks
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