Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Consider a three-asset portfolio valued at 10 million AUD. The portfolio consists of the following stocks: BHP, Commonwealth Bank (CBA) and Woolworths (WOW). The variance

image text in transcribed

Consider a three-asset portfolio valued at 10 million AUD. The portfolio consists of the following stocks: BHP, Commonwealth Bank (CBA) and Woolworths (WOW). The variance covariance matrix of 10 day continuously compounded returns is equal to BHP CBA WOW BHP 0.001625 0.000658 0.000769 CBA 0.000658 0.001783 0.000536 WOW 0.000769 0.000536 0.001387 a Define the Value at Risk (VaR) for the portfolio. b) Assuming portfolio weights of BHP (70%), CBA (55%), WOW (-25%), calculate the 99% 10 day relative VaR estimate employ a z score measured to 2 decimal places) c) Briefly discuss one limitation with the method used in part b) and its implication for the VaR estimate. d) Explain how you could estimate the Value at Risk for the portfolio using monte carlo simulation. Consider a three-asset portfolio valued at 10 million AUD. The portfolio consists of the following stocks: BHP, Commonwealth Bank (CBA) and Woolworths (WOW). The variance covariance matrix of 10 day continuously compounded returns is equal to BHP CBA WOW BHP 0.001625 0.000658 0.000769 CBA 0.000658 0.001783 0.000536 WOW 0.000769 0.000536 0.001387 a Define the Value at Risk (VaR) for the portfolio. b) Assuming portfolio weights of BHP (70%), CBA (55%), WOW (-25%), calculate the 99% 10 day relative VaR estimate employ a z score measured to 2 decimal places) c) Briefly discuss one limitation with the method used in part b) and its implication for the VaR estimate. d) Explain how you could estimate the Value at Risk for the portfolio using monte carlo simulation

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Monetary Policy And Public Finance

Authors: G. C. Hockley

1st Edition

1138704792, 978-1138704794

More Books

Students also viewed these Finance questions