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13. Consider the following discrete probability distribution of payoffs for two securities, A and B, held in the trading portfolio of an Fl: Probability 55% 44% 1% Probability 55% A $120m 95m -1,100m 44% 0.3% 0.7% $120m 100m -1,100m -1.414m a. Calculate the expected return on security A and B. b. Calculate the 99% confidence level VAR for security A and B c. Calculate the 99% confidence level expected shortfall for security A and B.

13. Consider the following discrete probability distribution of payoffs for two securities, A and B, held in the trading portfolio of an Fl: Probability 55% 44% 1% Probability 55% A $120m 95m -1,100m 44% 0.3% 0.7% $120m 100m -1,100m -1.414m a. Calculate the expected return on security A and B. b. Calculate the 99% confidence level VAR for security A and B c. Calculate the 99% confidence level expected shortfall for security A and B.

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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13. Consider the following discrete probability distribution of payoffs for two securities, A and B, held in the trading portfolio of an Fl: Probability 55% $120m Probability 55% B $120m 100m -1,100m -1.414m 44% 95m 44% 0.3% 1% -1,100m 0.7% a. Calculate the expected return on security A and B. b. Calculate the 99% confidence level VAR for security A and B| c. Calculate the 99% confidence level expected shortfall for security A and B. d. Which of the two securities will add more market risk to the FI's trading portfolio according to the VAR and ES measures?
Transcribed Image Text:13. Consider the following discrete probability distribution of payoffs for two securities, A and B, held in the trading portfolio of an Fl: Probability 55% $120m Probability 55% B $120m 100m -1,100m -1.414m 44% 95m 44% 0.3% 1% -1,100m 0.7% a. Calculate the expected return on security A and B. b. Calculate the 99% confidence level VAR for security A and B| c. Calculate the 99% confidence level expected shortfall for security A and B. d. Which of the two securities will add more market risk to the FI's trading portfolio according to the VAR and ES measures?
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