Question

Consider a position of $ 1,000,000 in asset X and $ 2,000,000 in
asset Y. Assume that the daily volatilities of both assets are 0.1%
and that the correlation coefficient between their returns is 0.30.
What is the 5-day 95% VaR of this portfolio, assuming a parametric
model of variances and covariances?

Answer #1

"Consider a position consisting of a $100,000 investment in
asset A and a $100,000investment in asset B. Assume that the daily
volatilities of both assets are 1% and that the coefficient of
correlation between their returns is 0.3. Estimate the 5-day 99%
VaR and ES for the portfolio assuming normally distributed
returns.The options mature in 8 months, and the futures contract
underlying the option matures in 9 months. The current 9-month
futures price is $8 per ounce, the exercise price...

14.1 Consider a position consisting of a $100,000 investment in
asset A and a $100,000 investment in asset B. Assume that the daily
volatilities of both assets are 1% and that the
coefficient of correlation between their returns is 0.3. What are
the five-day 97% VaR and ES for the portfolio?
14.23 The calculations in Section 14.3 assume that the
investments in the DJIA, FTSE 100, CAC 40, and Nikkei 225 are $4
million, $3 million, $1 million, and$2million,respectively.How do
the...

You are constructing a portfolio of two assets, asset X and
asset Y. The expected
returns of the assets are 7 percent and 20 percent, respectively.
The standard
deviations of the assets are 15 percent and 40 percent,
respectively. The
correlation between the two assets is .30 and the risk-free rate is
2 percent.
Required:
a) What is the optimal Sharpe ratio in a portfolio of the two
assets?
b) What is the smallest expected loss for this portfolio over...

Suppose an investor can invest in two stocks, whose returns are
random variables X and Y, respectively. Both are assumed to have
the same mean returns E(X) = E(Y) = μ; and they both have the same
variance Var(X) = Var(Y) = σ2. The correlation between X and Y is
some valueρ.
The investor is considering two invesment portfolios: (1)
Purchase 5 shares of the first stock (each with return X ) and 1 of
the second (each with return...

Treat each situation separately; show all calculations.
Critical value: 1.65(95%); 2.33(99%)
(a) You are holding a stock whose current value is s 4, 000.
Over the last year, histoncal data show that daily returns of this
share have averaged 0.012 percent per day, and the daily standard
deviation has been 0.06 percent. Assume that the daily retums
follow a normal distribution. At a 99% level of confidence, how
large a loss might occur on this stock luring the next 10...

Consider the following two assets:
Asset A:
expected return is 4% and standard deviation of return is 42%
Asset B:
expected return is 1.5% and standard deviation of return is
24%
The
correlation between the two assets is 0.1.
(1)
Compute the expected return and the standard deviation of return
for 4 portfolios with different weights w on asset A (and therefore
weight 1-w on B): w=-0.5, w=0.3, w=0.8, w=1.3.
(2)
Then sketch a portfolio frontier with the 4 portfolios,...

Consider the following information on the expected return for
companies X and Y. Economy Probability X Y Boom 0.17 31% 12%
Neutral 0.60 17% 24% Poor 0.23 −31% 10% a. Calculate the expected
value and the standard deviation of returns of companies X and Y.
(Round your final answers to 2 decimal places.) Company X Company Y
Expected value % % Standard deviation % % b. Calculate the
correlation coefficient if the covariance between X and Y is 70.
(Round...

Consider two assets (X and Y) with mX = 10%, mY = 10%, σX2=.16,
σY2=.25, and Cov(X,Y) = -.125. What is the expected return and
variance of the portfolio having 70% invested in X and 30% invested
in Y? Compare the risk and return of this portfolio with the risks
and returns associated with investing everything in either X or
Y.
What is rXY?
What is the expected return of the portfolio (m.7X+.3Y)?
What is the standard deviation of the...

Consider the following information on the expected return for
companies X and Y. Economy Probability X Y
Boom 0.24 38 % 17 %
Neutral 0.49 13 % 29 %
Poor 0.27 −28 % 4 %
a. Calculate the expected value and the standard deviation of
returns for companies X and Y. (Round intermediate calculations to
at least 4 decimal places. Round your final answers to 2 decimal
places.) b. Calculate the correlation coefficient if the covariance
between X and Y...

Consider the following information on the expected return for
companies X and Y.
Economy
Probability
X
Y
Boom
0.15
25
%
12
%
Neutral
0.56
12
%
27
%
Poor
0.29
−27
%
7
%
a. Calculate the expected value and the standard
deviation of returns for companies X and Y. (Round
intermediate calculations to at least 4 decimal places. Round your
final answers to 2 decimal places.)
Company X
Company Y
Expected Value
%
%
Standard Deviation
%...

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