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Question 7 A portfolio manager in the US holds two distinct classes of shares. The first class is identical to the S&P 500 and is
Question 7 A portfolio manager in the US holds two distinct classes of shares. The first class is identical to the S&P 500 and is worth $20 million with an expected return of 21% and a standard deviation of 15%. The second class is identical to the Nikkei 300 (an index of Japanese stock) and is valued at $20 million with an expected return of 14% and a standard deviation of 10%. Assume that all currency risk is hedged. The correlation between the S&P 500 and Nikkei 300 is 0.22 (all figures are annualised, 365 days per year). Calculate the 1% quarterly VAR using the variance-covariance method (8)
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