Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

We have $15 million in Stock A, and $10 million in Stock B. Assume N = 10 (days) and X = 99%. Assume daily volatility

We have $15 million in Stock A, and $10 million in Stock B. Assume

N = 10 (days) and X = 99%. Assume daily volatility of Stock A of

2% and daily volatility of Stock B of 1%. The correlation coefficient

is 0.3. The total value of the stocks exhaust the wealth, which means

the total value of the fund is V = $15m+$10m = $25m. Assuming

normal distribution, with N = 10 (days) and X = 99%, by how

much in dollars the diversification reduces 1-day and 10-day-VaR,

and 1-day and 10-day ES. Hint: Assume = 0, and compute the

the N-day VaRs and N-day ESs for the individual stocks, and then

compute the same by combining the two stocks in a portfolio.

NOTE: Please provide calculations with formula.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Corporate Finance

Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Gordon Roberts, Hamdi Driss

8th Canadian Edition

01259270114, 9781259270116

More Books

Students also viewed these Finance questions

Question

What are the legal ConSeQuenCeS of a data BreaCh? Appendix

Answered: 1 week ago