b) Suppose that you have invested in a portfolio consisting of 100,000 in Aviva shares and 200,000 in Rio Tinto shares. Suppose that the daily volatilities of these two assets are 1.2% and 1%, respectively, and that the coefficient of correlation between their returns is 0.5. Calculate the 10-day 99% normal VaR for this portfolio and show the benefits of diversification.

(10 marks)

c)Explain the main differences between forwards and options for hedging purposes. (5 marks)