Question
Use the expected $ profit of the portfolio of the two positions and the VAR that you calculated using the normal method to compute the
Use the expected $ profit of the portfolio of the two positions and the VAR that you calculated using the normal method to compute the RAROC of the portfolio. What is it? Suppose you were able to charge your clients a nonstandard fee for underwriting forward contracts. Which client (the one who asks you to take a short position in X or the one who asks you to take a long position in Y) would you want to charge a higher fee? Why? If you could accept some forward contracts and refuse others, would you ever want to accept a contract that has a negative expected RAROC? Why?
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