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A newly-established hedge fund with market value of 500 million Mexican peso invests in intermediate-term notes and bonds denominated in peso. The effective duration of
- A newly-established hedge fund with market value of 500 million Mexican peso invests in intermediate-term notes and bonds denominated in peso. The effective duration of the portfolio is 3.00 and the daily sigma of the portfolio is .05% (.0005). First, estimate the VaR of the portfolio over a week (5 days) assuming the returns are partially correlated (correlation of 0.60) @ the 95% confidence level. Second, briefly indicate what the VaR values mean to management and investors. Third, how could the hedge fund reduce the VaR given the same weekly interval, 95% confidence level and the 500 million pesos invested?
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