Based on Historical Simulation with m = 200 days, you find that the 6 lowest simulated portfolio returns are -10%, -7%, -6%, -5%, -4%, and -3%. These returns occurred 3, 20, 40, 10, 4, and 27 days ago, respectively. If using Weighted Historical Simulation (WHS), assume that the weights for each of these returns is 0.04, 0.01, 0.005, 0.02, 0.038, and 0.001, respectively. 

a) Based on WHS, what is the 1-day, 5% Expected Shortfall? Consider a derivative that has a payout tomorrow, day t + 1, that is equal to (10,000)(-Rt+1) if Rt+1 < -8%, and 0 otherwise. 

b) Based on WHS, what is the expected payout of the above derivative?

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Expected Shortfall and Payout Calculation We can use the provided information to calculate the 1day ... View the full answer