Question: Consider random variables (L_{1}) and (L_{2}), modeling loss from two portfolios, and assume that they are jointly normal. Show that, in this case, value-at-risk is

Consider random variables $L_{1}$ and $L_{2}$, modeling loss from two portfolios, and assume that they are jointly normal. Show that, in this case, value-at-risk is subadditive.

Step by Step Solution

★★★★★

3.40 Rating (150 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

SOLUTION Okay here is the proof that ValueatRisk VaR is subadditive for jointly ... View full answer

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Financial Markets Questions!

The lifetime (in months) of a particular aircraft component follows a probability density function: f(x) = 0, x24 240 x3 , x>24 (a) A system contains 5 such independent components. What is the...

The most familiar probability distribution is, no doubt, the normal. Can we say that the distribution of return from a stock share is normal? Empirical investigation tends to support a different...

This problem requires a basic understanding of the normal probability distribution. Investors are often interested in knowing the probabilities of poor returns. For example, for what cutoff return...

Northern Virginia Community College HOW MUCH FINANCIAL RISK SHOULD YOU TAKE? Mark D. D'Antonio Nova Southeastern University FORT LAUDERDALE, FLORIDA, U.S.A. Abstract A successful retirement...

QUIZ... Let D be a poset and let f : D D be a monotone function. (i) Give the definition of the least pre-fixed point, fix (f), of f. Show that fix (f) is a fixed point of f. [5 marks] (ii) Show that...

For monotone functions f, f0: P Q between posets (P, vP ) and (Q, vQ), let f v f(i) Prove that the binary relation v is a partial order. [3 marks] (ii) For monotone functions between posets p : P 0...

In a distributed electronic conference application each participant has a replica of a shared whiteboard. Only one user at a time may write to the whiteboard, after which the user's update is...

CST.20assign data Extract = dataStore; endmodule (a) What would be suitable comments on the behaviour of the code at points "comment A" to "comment D"? [4 marks] (b) In the synthesised...

Dear Sir I Would like the answers of the documents i attach School of Business and Economics EXAM Course : Code : Date Time Location Risk Management EBC4056 : 3 June, 2010 : 9.00 - 12.00 : MECC...

Consider the daily IBM log daily returns (Tsay) over July 1962 - September 1997 with a total of 9190 observations. We use two volatility models to calculate VaR of 1-day horizon at t=9190 for a long...

IOE 419 Mark S. Daskin Service Operations Management IOE Department Winter, 2017 University of Michigan Problem set 4 DUE: MONDAY - February 20, 2017 Points: 100 points total Problem 1: Babette has...

A filament lamp is rated at "4.0 V, 0.80 W" on its package. The potentiometer has a resistance 7.0 V from X to Z of 24 2 and has linear variation. X > Y R R (d) The potentiometer is adjusted so that...

ZNC's free cash flow to equity holders is expected to be $110 million for years 1-3 and is projected to grow at a rate of 4% afterwards. There are 20 million shares of equity outstanding. What is the...

Dean earned $ 8 0 , 0 0 0 during the current year. Without regard to federal income taxes, how much will his employer withhold from his paycheck for social security taxes and Medicare taxes?

(*) Prove that Bayesian credibility estimate when the number of claims of a client follows a Poisson distribution and the prior distribution for the Poisson rate follows a gamma distribution can be...

Some years ago, Japan's four largest brokerage firms (Yamaichi Securities Co., Nomura Securities Co,, Daiwa Securities Co, and Nikko Securities Co.) formally asked their government to lift bans that...

Consider two transactions. The Norwegian government sells bonds in the United States. The buyer of one of those bonds is an insurance company, which, after holding the bond for a year, sells it to a...

The following statements come from the December 24, 1990, issue of Corporate Financing Week. As in the public market, growth in the private placement market was slowed this year by a rise in interest...

A group of pooled loans used is expected to yield a return of 23%. The coupon rate promised to investors on securities issued against the pool of loans is 8%. The default rate on the pooled loans is...

Critical review of the kingdom of heaven

A 7-year project is expected to provide annual sales of $201,000 with costs of $95,000. The equipment necessary for the project will cost $335,000 and will be depreciated on a straight-line method...