Suppose that each of two investments has a 4% chance of a loss of $10 million, a

Question:

Suppose that each of two investments has a 4% chance of a loss of $10 million, a 2% chance of a loss of $1 million, and a 94% chance of a profit of $1 million. They are independent of each other.
(a) What is the VaR for one of the investments when the confidence level is 95%?
(b) What is the expected shortfall when the confidence level is 95%?
(c) What is the VaR for a consisting of the two investments when the confidence level is 95%?
(d) What is the expected shortfall for a consisting of the two investments when the confidence level is 95%?
(e) Show that, in this example, VaR does not satisfy the subadditivity condition whereas expected shortfall does. Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...