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.

(a) What is the 97.5% VaR for each project?

(b) What is the 97.5% expected shortfall for each project?

(d) What is the 97.5% expected shortfall for the portfolio?

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To solve the problem we need to calculate the Value at Risk VaR and Expected Shortfall ES for each project and then for the entire portfolio Lets tackle each part of the question step by step StepbySt... View full answer

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