An investment bank holds a portfolio of Global ETFs and Infrastructure bonds with allocations of USD...
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An investment bank holds a portfolio of Global ETFs and Infrastructure bonds with allocations of USD 800,000 and USD 700,000 on each instrument. On Monday 6 th June 2023. The 7-day quoted prices of the instruments were as follows: Asset 6/06/23 Day 1 Day 2 Class Equity 40 Bond 100 43.2 44.5 Day 3 47.6 97.86 99.8 102.1 Day 4 Day 5 Day 6 40.9 101.9 38.34 42.2 Day 7 39.6 96.67 94.56 93.9 The Pearson correlation estimate between the ETFs and infrastructure bonds was determined to be 0.1472. Required: i) Compute the 7-day 95% Value-at-Risk (VaR) of the constructed portfolio (9 marks) ii) Compute the 252-day 95% Expected Shortfall of the portfolio, given that the standard Gaussian density function is (6 marks) iii) Given that the analyst is required by the regulator to also report the 252-day Stressed 95% VaR and 252-day Stressed Expected Shortfall estimates assuming correlations and portfolio volatility increased by 20% and 50% respectively. (7 marks) An investment bank holds a portfolio of Global ETFs and Infrastructure bonds with allocations of USD 800,000 and USD 700,000 on each instrument. On Monday 6 th June 2023. The 7-day quoted prices of the instruments were as follows: Asset 6/06/23 Day 1 Day 2 Class Equity 40 Bond 100 43.2 44.5 Day 3 47.6 97.86 99.8 102.1 Day 4 Day 5 Day 6 40.9 101.9 38.34 42.2 Day 7 39.6 96.67 94.56 93.9 The Pearson correlation estimate between the ETFs and infrastructure bonds was determined to be 0.1472. Required: i) Compute the 7-day 95% Value-at-Risk (VaR) of the constructed portfolio (9 marks) ii) Compute the 252-day 95% Expected Shortfall of the portfolio, given that the standard Gaussian density function is (6 marks) iii) Given that the analyst is required by the regulator to also report the 252-day Stressed 95% VaR and 252-day Stressed Expected Shortfall estimates assuming correlations and portfolio volatility increased by 20% and 50% respectively. (7 marks)
Expert Answer:
Answer rating: 100% (QA)
Answer i To compute the 7day 95 VaR of the constructed portfolio we first need to calculate the daily returns for both the equity and bond assets We can do this by taking the natural logarithm of the ... View the full answer
Related Book For
Financial Reporting And Analysis
ISBN: 9781260247848
8th Edition
Authors: Lawrence Revsine, Daniel Collins, Bruce Johnson, Fred Mittelstaedt, Leonard Soffer
Posted Date:
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