Question
Suppose that you have two investments, each of which has a 0.9% chance of a loss of $10 million and a 99.1% chance of a
Suppose that you have two investments, each of which has a 0.9% chance of a loss of $10 million and a 99.1% chance of a loss of $1 million. These two investments are independent of each other.
(1) What is the VaR for one of the investments at the 99% confidence level?
(2) What is the expected shortfall for one of the investments at the 99% confidence level?
(3) What is the 99% VaR for a portfolio consisting of the two investments?
(4) What is the 99% expected shortfall for a portfolio consisting of the two investments?
(5) Verify that VaR does not satisfy the subadditivity condition in this example whereas expected shortfall does.
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Data Analysis And Decision Making
Authors: Christian Albright, Wayne Winston, Christopher Zappe
4th Edition
538476125, 978-0538476126
