Suppose that a trader has bought some illiquid stocks. In precise, the trader has one hundred shares of A, that is bid $50 and offer $60, and 200 stocks of B, that is bid $25 and provide $35. What are the proportional bid-provide spreads? What is the impact of the high bid-offer spreads on the quantity it would fee the trader to unwind the portfolio? If the bid-offer spreads are normally allotted with mean $10 and trendy deviation $three, what is the ninety nine% worst-case price of unwinding in the destiny as a percent of the fee of the portfolio? 24.15 A trader needs to unwind a position of 200,000 devices in an asset over eight days. The dollar bid-provide unfold, as a function of each day buying and selling volume q, is a + becq in which a = zero.2, b = 0.15, and c = 0.1 and q is measured in hundreds. The popular deviation of the price alternate in step with day is $1.50.What is the most effective buying and selling strategy for minimizing the 99% self belief stage for the costs? What is the average time the dealer waits before promoting? How does this average time alternate as the confidence level adjustments? [12:52 PM, 11/11/2021] vii: In Problem 26.6, what's the incremental effect of every enterprise unit on the whole financial capital? Use this to allocate monetary capital to enterprise gadgets. What is the effect at the financial capital of each enterprise unit growing with the aid of zero.5%? Show that your effects are steady with Euler's theorem. 26.Eight A financial institution is considering increasing its asset control operations. The fundamental risk is operational risk. It estimates the expected operational risk loss from the new undertaking in twelve months to be $2 million and the 99.Ninety seven% VaR (springing up from a small chance of an large investor lawsuit) to be $40 million. The predicted costs it'll receive from buyers for the price range underneath management are $12 million per yr, and administrative costs are predicted to be $three million consistent with 12 months. Estimate the before-tax RAROC. 26.Nine RAROC may be used in two special methods. What are they? Further Questions 26.10 Suppose that every day gains (losses) are commonly distributed with a general deviation of $5 million. (a) Estimate the minimal regulatory capital the bank is needed to keep. (Assume a multiplicative aspect of 4.Zero.) (b) Estimate the monetary capital the use of a one-year time horizon and a 99.Nine% self assurance stage assuming that there may be a correlation of 0.05 among profits (losses) on successive days. 26.Eleven Suppose that the economic capital estimates for 2 enterprise units are Business Units 1 2 Market Risk 10 50 Credit Risk 30 30 Operational Risk 50 10 [12:52 PM, 11/11/2021] vii: The correlation between market hazard and credit score hazard in the equal enterprise unit is 0.3. The correlation between credit score chance in one commercial enterprise unit and credit threat in any other is zero.7. The correlation between marketplace hazard in a single business unit and market risk within the other is 0.2. All other correlations are zero. Calculate the overall monetary capital. How a whole lot have to be allocated to each business unit? 26.12 Suppose that a financial institution's sole business is to lend in regions of the arena. The lending in each vicinity has the identical characteristics as in Example 26.Five of Sec- tion 26.8. Lending to Region A is three times as wonderful as lending to Region B. The correlation between loan losses in the areas is 0.4. Estimate the entire RAROC.

1. (10 pts) The capital asset pricing model, discussed in chapter 6, provides a pricing model of stocks or other assets. The model provides investors with a tool to incorporate market risk into a stock's pricing mechanism by requiring additional return on an asset that is exposed to market risk. Support this thought with only two principles of finance.Please Answer using Microsoft Excel L Suppose we modify the production model to obtain the following matl'lmatical model: Max 1UX s_t. axs 4D x: U 1Where a is the number of hours of production time required for each unit produced. With a=5, the optimal solution is x=EL If we have a stod'iastic model with a=3,a=4,a=5, or a= as the possible values forthe number of hours required per unit, what is the optimal 1iralue for it? What problems does this stochastic model cause