Question
Assume that a financial institution holds a portfolio containing 50 million of Stock A and 50 million of Stock B. The standard deviations of the
Assume that a financial institution holds a portfolio containing 50 million of Stock A and 50 million of Stock B. The standard deviations of the Stock A returns are 0.20%, 1.00% and 2.00% when calculated on a daily, weekly, and monthly basis respectively. The standard deviations of the Stock B returns are 0.70%, 3.00% and 5.00% at the same time horizons. The correlations between the returns for the above securities at the daily, weekly, and monthly time horizons are 0.20, -0.3 and -0.5 respectively.
1)Calculate the VaR for each asset in the port folio separately at each time horizon and for 5% and 1% significance levels. In your own words, comment on the pattern of your results.
2)Calculate the VaR for the portfolio at each time horizon and for 5% and 1% significance levels.In your own words, comment on the pattern of your results.
3) define market risk and explain how VaR can be used
4)explain what interest rate riskis. Provide an example where a financial institution is long-funded.
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