only question B?

vas D. Maps Oversatt You manage a portfolio consisting of 1000 shares of Alfa Laval, 2000 shares of Boliden, 600 shares of Hexagon, and 3,000 shares of H&M. In Table 1 below you can find information about the current price of each stock, the expected return on an annual basis for each stock, as well as the estimated covariance matrix of returns (on an annual basis). Table 1: Stock data Price, SEK E(return) Alfa Laval 238 0.08 0.34 0.11 535 0.06 183 0.13 Alfa Laval Boliden Hexagon H&M Boliden 0.33 0.41 258 Hexagon 0.21 0.13 0.38 H&M 0.22 0.18 0.25 0.36 a) What is the expected return for the portfolio over the coming 3 months, i.e., 63 days? (2) b) What is the worst loss for each of your stock holdings and totally on your portfolio, respectively, over the coming 3 months (i.e. 63 days), given a confidence level of 99 percent? Base you calculations on the relative parametric value-at-risk for the individual stocks and for the portfolio, respectively, assuming that the returns are normally distributed. (6p) c) Recalculate (b) instead using the absolute parametric value-at-risk for the individual stocks and for the portfolio, respectively. (6p) d) Calculate the undiversified VaR and the monetary gains from diversification based on both the relative (exercise b) and absolute (exercise c) parametric value-at-risk for the individual stocks and for the portfolio, respectively. Explain the difference in results between using the relative versus absolute VaR models. (4p) c) Over the last 36 months you observe that the daily observed losses in your portfolio is greater than that predicted by your Varmudy model on 2 days. Are you satisfied with your estimates of predicted risk? Motivate your answer. (4) vas D. Maps Oversatt You manage a portfolio consisting of 1000 shares of Alfa Laval, 2000 shares of Boliden, 600 shares of Hexagon, and 3,000 shares of H&M. In Table 1 below you can find information about the current price of each stock, the expected return on an annual basis for each stock, as well as the estimated covariance matrix of returns (on an annual basis). Table 1: Stock data Price, SEK E(return) Alfa Laval 238 0.08 0.34 0.11 535 0.06 183 0.13 Alfa Laval Boliden Hexagon H&M Boliden 0.33 0.41 258 Hexagon 0.21 0.13 0.38 H&M 0.22 0.18 0.25 0.36 a) What is the expected return for the portfolio over the coming 3 months, i.e., 63 days? (2) b) What is the worst loss for each of your stock holdings and totally on your portfolio, respectively, over the coming 3 months (i.e. 63 days), given a confidence level of 99 percent? Base you calculations on the relative parametric value-at-risk for the individual stocks and for the portfolio, respectively, assuming that the returns are normally distributed. (6p) c) Recalculate (b) instead using the absolute parametric value-at-risk for the individual stocks and for the portfolio, respectively. (6p) d) Calculate the undiversified VaR and the monetary gains from diversification based on both the relative (exercise b) and absolute (exercise c) parametric value-at-risk for the individual stocks and for the portfolio, respectively. Explain the difference in results between using the relative versus absolute VaR models. (4p) c) Over the last 36 months you observe that the daily observed losses in your portfolio is greater than that predicted by your Varmudy model on 2 days. Are you satisfied with your estimates of predicted risk? Motivate your answer. (4)