Market Risk Management

*THESE CALCULATIONS ARE VERY COMPLICATED, TAKE YOUR TIME AND ANSWER CORRECTLY*

QUESTION 1

Suppose that the change in the value of a portfolio over a one-day time period is normal with a mean of zero and a standard deviation of $5 million. The first-order autocorrelation of daily changes is 0.1.

1. The five-day 97.5% VaR is $......... million.

Round your answer to two decimal places (e.g.,12.23million)

2. The five-day 99% VaR is $......... million.

Round your answer to two decimal places (e.g.,12.23million)

QUESTION 2

Losses for 250 different scenarios are ranked in the table below.

Losses ranked from highest to lowest for 250 scenarios

Scenario number	Losses
212	R201 389 000
249	R191 269 000
133	R185 127 000
89	R184 450 000
100	R182 707 000
123	R180 105 000
44	R172 224 000
...	...
...	...
...	...

The 95% VaR can be estimated as the fourth-worst loss.

1. The estimated 95% VaR is R ............

Enter a numerical number without spaces or commas for thousand separators (E.g 172224000)

2. The expected shortfall using historical simulation is the average of the losses that are better / worse than VaR.

3. The Expected Shortfall using the historical simulation is R ........

Enter a numerical number without spaces or commas for thousand separators (E.g 172224)

QUESTION 3

1. A fund manager announces that the fund's one-month 95% VaR is 6.5% of the size of the portfolio being managed. You have an investment of $100,000 in the fund. How do you interpret the portfolio manager's announcement?There is a 5% chance that you will lose $ .......... or more during a one-month period.

2.Suppose the expected shortfalls calculated for two segments of a business are $55 million and $110 million. The correlation between the losses is estimated as 0.5. The ExpectedShortfall is $ ........ million.

Round your answer to two decimal places (e.g.,12.23million)

QUESTION 4

Suppose that the change in the value of a portfolio over a one-day time period is normal with a mean of zero and a standard deviation of $5 million.

1.The one-day 97.5% VaR is $ .......... million.

Round your answer to two decimal places (e.g.,12.23million)

2.The five-day 97.5% VaR is $ ........... million.

Round your answer to two decimal places (e.g.,12.23million)

3. The five-day 99% VaR is $ ............ million.

Round your answer to two decimal places (e.g.,12.23million)

*TAKE YOUR TIME AND ANSWER VERY CORRECTLY!*