Question: a)What are the 3 common method to calculate VaR? what are their advantages and disadvantages for each method? Consider a position consisting of a $800,000

a)What are the 3 common method to calculate VaR? what are their advantages and disadvantages for each method?

Consider a position consisting of a $800,000 investment in gold and a $530,000 investment in silver. Suppose that the daily volatilities of these two assets are 1.4% and 2.6% respectively, and that the coefficient of correlation between their returns is 0.75.

b)What is the 10-day 99% VaR for the portfolio?(10 points, please show your working)

c)By how much does diversification reduce the VaR, if any?Explain.

(given N(-2.33)=0.01, N(-1.96)=0.025, N(-1.65)=0.05, where N(x) is the cumulative probability distribution function for a standardized normal distribution.)

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