a) Consider figure 12.4 below from the Hull book. It is the probability distribution for gain in portfolio value during time T and at confidence level X%. Discuss the pitfalls of using VaR at level V. Would you recommend another risk measure? If yes, discuss the trade-off between VaR and this other risk measure. What is a desirable property this other risk measure has? How useful would it be to use this other measure if the probability distribution for gain in portfolio were normal? Figure 12.4 (100X)% Loss -V Gain [13 marks] b) Why is it challenging to unwind a trading position optimally? Discuss its trade-offs and how these would differ in the following two environments: (i) one with the typical bid-offer spread function you learnt in the Risk Management for Banking module AND (ii) one very atypical bid-offer spread function where the gap between the bid and the offer is constant for all quantities traded. [12 marks]