Question
Value at Risk (VaR) and Expected Shortfall (ES) are two measures of market risk employed by financial institutions and their regulators. a) VaR calculation is
Value at Risk (VaR) and Expected Shortfall (ES) are two measures of market risk employed by financial institutions and their regulators.
a) VaR calculation is based on daily earning at risk (DEAR). The National Bank's risk manager has estimated that the DEARs of two of its major assets in its trading portfolio, foreign exchange and bonds, are -$150,000 and -$250,000, respectively. What is the total DEAR of the bank's trading portfolio if the correlation coefficient between the two assets is 0.80?
b) What is the main advantage of ES over VaR?
c) What is the purpose of introducing a "Stressed VaR"?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
a To calculate the total daily earning at risk DEAR of the banks trading portfolio we can use the fo...
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Statistics For Business Decision Making And Analysis
Authors: Robert Stine, Dean Foster
2nd Edition
978-0321836519, 321836510, 978-0321890269
