Suppose that the portfolio considered in Example 1 in the lecture presentation 4 has (in

$000s) 3,000 in DJIA, 3,000 in FTSE, 1,000 in CAC 40, and 3,000 in Nikkei 225. Use the

enclosed spreadsheet "VaRExampleRMFI4eHistoricalSimulation.xls" on MyUni to

calculate:

(a) The one-day 99% VaR and ES

(b) The one-day 99% VaR and ES that are calculated using the weighting-of observations

procedure and =0.995

(c) The one-day 99% VaR and ES that are calculated using the two volatility-updating

procedures:

(i) taking into account of the volatilities of the relevant market variables;

(ii) use the simpler approach to adjusting for volatility changes.

= 0.94. (Assume that the initial variance when exponentially weighted moving

average (EWMA) is applied is the sample variance.)

Note that the original data for the 4 indexes is in Worksheet "1.Data"

(a) VaR is $230,785; ES is $348,375 (see worksheets 1 to 3)

(b) VaR is $262,456; ES is $413,774 (see worksheets 4 and 5)

(c) For the first procedure VaR is $629,943; ES is $716,840 (see worksheets 6 to 8). For the