# Question: The calculations in Section 15 3 assume that the investments in

The calculations in Section 15.3 assume that the investments in the DJIA, FTSE 100, CAC 40, and Nikkei 225 are $4 million, $3 million, $1 million, and $2 million, respectively. How do the VaR and ES change if the investment are $3million, $3 million, $1 million, and $3 million, respectively? Carry out calculations when

(a) volatilities and correlations are estimated using the equally weighted model

(b) when they are estimated using the EWMA model. What is the effect of changing from 0.94 to 0.90 in the EWMA calculations? Use the spreadsheets on the author’s web site.

(a) volatilities and correlations are estimated using the equally weighted model

(b) when they are estimated using the EWMA model. What is the effect of changing from 0.94 to 0.90 in the EWMA calculations? Use the spreadsheets on the author’s web site.

**View Solution:**## Answer to relevant Questions

Why is there an add-on amount in Basel I for derivatives transactions? “Basel I could be improved if the add-on amount for a derivatives transaction depended on the value of the transaction.” How would you argue this ...A bank has the following balance sheet Cash 3 Retail Deposits (stable) 25 Treasury Bonds (>1 year) 5 Retail Deposits (less stable) 15 Corporate Bonds Rated A 4 Wholesale Deposits 44 Residential ...The value of a company’s equity is $4 million and the volatility of its equity is 60%. The debt that will have to be repaid in two years is $15 million. The risk-free interest rate is 6% per annum. Use Merton’s model to ...Use the transition matrix in Table 21.1 and software on the author’s web site to calculate the transition matrix over 1.25 years. Suppose that all options traders decide to switch from Black–Scholes to another model that makes different assumptions about the behavior of asset prices. What effect do you think this would have on (a) the pricing of ...Post your question