Question

An analyst would like to know the VaR (Value at Risk) for a portfolio consisting of two asset classes: long-term government bonds issued in the China and long-term government bonds issued in the South Korea. The expected monthly return on China bond is 0.65 percent, and the standard deviation is 2.80 percent. The expected monthly return on South Korea bond is 0.75 percent, and the standard deviation is 4.60 percent. The correlation between the China dollar returns and South Korea dollar return is 0.55. The portfolio market value is $100 million and is equally weighted between the two asset classes. Using the analytical or variance–covariance method. Compute 5 percent weekly VaR.

Answer 1