# Question

Values for the NASDAQ composite index during the 1,500 days preceding March 10, 2006, can be downloaded from the author’s web site. Calculate the one-day 99% VaR and the one-day 99% ES on March 10, 2006, for a $10 million portfolio invested in the index using

(a) The basic historical simulation approach.

(b) The exponential weighting scheme in Section 13.3 with = 0.995.

(c) The volatility-updating procedures in Section 13.3 with = 0.94. (Assume that the initial variance when EWMA is applied is the sample variance.)

(d) Extreme value theory with u = 300 and equal weightings.

(e) A model where daily returns are assumed to be normally distributed with mean zero. (Use both an equally weighted approach and the EWMA approach with = 0.94 to estimate the standard deviation of daily returns.)

Discuss the reasons for the differences between the results you get.

(a) The basic historical simulation approach.

(b) The exponential weighting scheme in Section 13.3 with = 0.995.

(c) The volatility-updating procedures in Section 13.3 with = 0.94. (Assume that the initial variance when EWMA is applied is the sample variance.)

(d) Extreme value theory with u = 300 and equal weightings.

(e) A model where daily returns are assumed to be normally distributed with mean zero. (Use both an equally weighted approach and the EWMA approach with = 0.94 to estimate the standard deviation of daily returns.)

Discuss the reasons for the differences between the results you get.

## Answer to relevant Questions

Consider a position consisting of a $300,000 investment in gold and a $500,000 investment in silver. Suppose that the daily volatilities of these two assets are 1.8% and 1.2% respectively, and that the coefficient of ...A bank has written European a call option on one stock and a European put option on another stock. For the first option, the stock price is 50, the strike price is 51, the volatility is 28% per annum, and the time to ...Explain one way that the Dodd–Frank Act is in conflict with (a) the Basel international regulations (b) the regulations introduced by other national governments. 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 ...What difference does it make to the worst-case scenario in Example 22.1 if (a) the options are American rather than European and (b) the options are barrier options that are knocked out if the asset price reaches $65? Use ...Post your question

0