Question
Given the following portfolio One unit of stock S with initial value $50 $50 in a money market (MM) account (Risk-free) Other assumptions Risk free
Given the following portfolio
One unit of stock S with initial value $50
$50 in a money market (MM) account (Risk-free)
Other assumptions
Risk free rate term structure of 3% flat
o Model as a Hull-White process with a=0.10 and sigma = 0.01
Stock Real World (RW) growth rate of 8%
Stock RW volatility of 15%
Implied volatility of 20%
Simulate 100 RW scenarios and calculate the following.
a) What is the VaR and Expected Shortfall of this portfolio in 1
year?
b) What is the VaR and Expected Shortfall of the same
portfolio if you rebalance each month to the original
50%/50% split between S and MM?
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