Run Algorithm 9 (pp. 54) with various correlations between the two stocks and the market. What is the risk of loss when: 

(a) ρ₁ = 1, ρ₂ = 1?, 

(b) ρ₁ = 1, ρ₂ = −1?, 

(c) ρ₁ = 0, ρ₂ = 0?, 

(d) ρ₁ = −1, ρ₂ = −1?, 

(e) ρ₁ = 0.6, ρ₂ = −0.6?

Data given in Algorithm 9

Correlated Portfolio Risk

for i = 1, 2,...,N

• Generate a random market scenario

• Generate stock 1 prices with ρ = ρ₁

• Generate stock 2 prices with ρ = ρ₂ 

• Average to generate the portfolio prices 

• Record a ‘hit’ if the S_T < S₀

end for

• Output (number of hits)/N