4. Consider a position consisting of a $50,000 investment in onions and a $80,000 investment in rubber bands. Suppose that the per annum volatilities of these two assets are 25% and 15%, respectively, and that the coefficient of correlation between their returns is -0.4. What is the 5-day 97.5% VaR and ES for the portfolio? By how much does diversification reduce the VaR? Assume jointly normally distributed returns.
4. Consider a position consisting of a $50,000 investment in onions and a $80,000 investment in rubber bands. Suppose that the per annum volatilities of these two assets are 25% and 15%, respectively, and that the coefficient of correlation between their returns is -0.4. What is the 5-day 97.5% VaR and ES for the portfolio? By how much does diversification reduce the VaR? Assume jointly normally distributed returns.
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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4. Consider a position consisting of a $50,000 investment in onions and a $80,000 investment in rubber bands. Suppose that the per annum volatilities of these two assets are 25% and 15%, respectively, and that the coefficient of correlation between their returns is -0.4. What is the 5-day 97.5% VaR and ES for the portfolio? By how much does diversification reduce the VaR? Assume jointly
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