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Consider a well-diversified domestic (Australian) portfolio consisting of several hundred assets from the following asset classes: equities, bonds, commodities and real estate. Carefully explain the
Consider a well-diversified domestic (Australian) portfolio consisting of several hundred assets from the following asset classes: equities, bonds, commodities and real estate.
- Carefully explain the steps you would use to calculate a 95% 10 day Value at Risk (VaR) estimate using daily price data. Assume that you are implementing the procedure in excel.
- Explain how you could quantify the VaR diversification benefit in the portfolio.
- Now assume that you require a 95% 100 day VaR estimate. Is this likely to be greater or less than the 10 day estimate in part a)? Why/why not?
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