Consider a position consisting of a K200,000 investment in Asset A and a K300,000 investment in Asset B. Assume that the daily volatilities of the assets are 1.5% and 1.8% respectively, and that the coefficient of correlation between their returns is 0.4. What is the five day 95% Value at Risk (VaR) for the portfolio (95% confidence level represents 1.65 standard deviations on the left side of a normal distribution)? Wila is a risk-analyst at Deli Bank (DB), a commercial bank with operations in Zambia. DB iscurrently expanding its operations to include proprietary trading and is reviewing its riskmanagement policies. DB uses Value at Risk (VaR) models to monitor its risk exposures.DB's current portfolio of currencies contains only long positions. The volatility of the currencies inits portfolio has recently increased, and Wila expects volatility to remain high over the next severalquarters. As a result, she has hedged the portfolio using currency options.

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MATLAB: An Introduction with Applications

6th Edition

ISBN:9781119256830

Author:Amos Gilat

Publisher:Amos Gilat

Chapter1: Starting With Matlab

Section: Chapter Questions

Problem 1P

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Consider a position consisting of a K200,000 investment in Asset A and a K300,000 investment in Asset B. Assume that the daily volatilities of the assets are 1.5% and 1.8% respectively, and that the coefficient of correlation between their returns is 0.4. What is the five day 95% Value at Risk (VaR) for the portfolio (95% confidence level represents 1.65 standard deviations on the left side of a normal distribution)?

Wila is a risk-analyst at Deli Bank (DB), a commercial bank with operations in Zambia. DB is
currently expanding its operations to include proprietary trading and is reviewing its risk
management policies. DB uses Value at Risk (VaR) models to monitor its risk exposures.
DB's current portfolio of currencies contains only long positions. The volatility of the currencies in
its portfolio has recently increased, and Wila expects volatility to remain high over the next several
quarters. As a result, she has hedged the portfolio using currency options.

Features Features Normal distribution is characterized by two parameters, mean (µ) and standard deviation (σ). When graphed, the mean represents the center of the bell curve and the graph is perfectly symmetric about the center. The mean, median, and mode are all equal for a normal distribution. The standard deviation measures the data's spread from the center. The higher the standard deviation, the more the data is spread out and the flatter the bell curve looks. Variance is another commonly used measure of the spread of the distribution and is equal to the square of the standard deviation.

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