Suppose you have a portfolio with a long position of $2 million in BAA bonds and short $1m in T-notes.Volatilities are 1.58% and 1.90% per month, respectively, with a correlation of 0.9654.a)

Compute the 95% monthly VAR for each position individuallyb)

Compute the 95% portfolio VAR and diversification effectc)

Compute the component VAR and discuss whether some positions hedge the portfolio risk