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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.

  1. 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.
  2. Explain how you could quantify the VaR diversification benefit in the portfolio.
  3. 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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