2. (20 marks) (a) (b) If costs follow a normal distribution with an expected value of...
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2. (20 marks) (a) (b) If costs follow a normal distribution with an expected value of $1 million and standard deviation of $0.2 million, what is the maximum probable cost with a 99 percent accuracy? (4 marks) (c) The daily volatility of stock PYU is 110 basis points, and the bid-ask spread is estimated to be 36 basis points. For a $30-million position in this stock, what is the liquidity- adjusted VAR at 99% confidence level? (4 marks) (d) Currently your portfolio value is $200,000. According to your estimation, the expected profit for your portfolio in the next year will be $15,000. If the yearly VAR(mean) at 99% confidence level is $95,000, then what is the lowest portfolio value in the next year at 99 confidence level? (4 marks) The one-day 99% VAR of positions of ABC stock and XYZ stock are $365,000 and $207,000, respectively. Given that the correlation of returns of the two stocks is 0.6, what is the 10-day 95% VAR for the portfolio combining the two positions? (8 marks) 2. (20 marks) (a) (b) If costs follow a normal distribution with an expected value of $1 million and standard deviation of $0.2 million, what is the maximum probable cost with a 99 percent accuracy? (4 marks) (c) The daily volatility of stock PYU is 110 basis points, and the bid-ask spread is estimated to be 36 basis points. For a $30-million position in this stock, what is the liquidity- adjusted VAR at 99% confidence level? (4 marks) (d) Currently your portfolio value is $200,000. According to your estimation, the expected profit for your portfolio in the next year will be $15,000. If the yearly VAR(mean) at 99% confidence level is $95,000, then what is the lowest portfolio value in the next year at 99 confidence level? (4 marks) The one-day 99% VAR of positions of ABC stock and XYZ stock are $365,000 and $207,000, respectively. Given that the correlation of returns of the two stocks is 0.6, what is the 10-day 95% VAR for the portfolio combining the two positions? (8 marks)
Expert Answer:
Answer rating: 100% (QA)
a The liquidityadjusted VAR at 99 confidence level is calculated using the formula VAR daily volatil... View the full answer
Related Book For
Contemporary Financial Management
ISBN: 9780324289114
10th Edition
Authors: James R Mcguigan, R Charles Moyer, William J Kretlow
Posted Date:
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