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M According to the CAPM, the annual return r of an asset can be modeled by regression with the independent variable of the index (market
M According to the CAPM, the annual return r of an asset can be modeled by regression with the independent variable of the index (market portfolio) annual return as follows: r-re=Q+Brm -rf) + where ' f is risk-free rate of return, rm NUM, OM), and e~ N(0,0%). Here we assume that rm and are independent Suppose that = 0 and we estimate parameters as follows: a=0.002, B = 0.9, and o=0.1. Suppose the mean and standard deviation of the index annual return m are Wm= 0.1 and om = 0.2, respectively. Calculate 99%-VaR (=VaR1%(r)) of r. Note that 99% quantile value of the standard normal distribution is 999%= 2.326. = 0.006622 0.5593 0.5710 0.3870 M According to the CAPM, the annual return r of an asset can be modeled by regression with the independent variable of the index (market portfolio) annual return as follows: r-re=Q+Brm -rf) + where ' f is risk-free rate of return, rm NUM, OM), and e~ N(0,0%). Here we assume that rm and are independent Suppose that = 0 and we estimate parameters as follows: a=0.002, B = 0.9, and o=0.1. Suppose the mean and standard deviation of the index annual return m are Wm= 0.1 and om = 0.2, respectively. Calculate 99%-VaR (=VaR1%(r)) of r. Note that 99% quantile value of the standard normal distribution is 999%= 2.326. = 0.006622 0.5593 0.5710 0.3870
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