Question: Consider a portfolio that is constituted by two projects, say A and B. Each project has a 1/10 chance of a loss of $10 million

Consider a portfolio that is constituted by two projects, say A and B. Each project has a 1/10 chance of a loss of $10 million and a 9/10 of a loss $1 million. Moreover, each project has probabilities 1/3 and 2/3 of a loss of $1 million and $10 million respectively, given that the other project had a loss of $1 million, and probabilities 1/4 and 3/4 of a loss of $1 million and $10 million respectively, given that the other project had a loss of $10 million. School of Economics MSc in Applied Economics and Finance & MSc in Finance and Banking Bank Supervision, Risk Management and Derivatives Professor: Plutarchos Sakellaris T.A.: Stelios Giannoulakis 2 (a) What is the 97.5% VaR for each project? (b) What is the 97.5% expected shortfall for each project? (c) What is the 97.5% VaR for the portfolio? (d) What is the 97.5% expected shortfall for the portfolio?

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