FREE Trial

Consider a three-asset portfolio valued at 10 million AUD. The portfolio consists of the following stocks: BHP, Commonwealth Bank...

This problem has been solved!
Do you need an answer to a question different from the above? Ask your question!

Question:

 
Transcribed Image Text:

Consider a three-asset portfolio valued at 10 million AUD. The portfolio consists of the following stocks: BHP, Commonwealth Bank (CBA) and Woolworths (WOW). The variance covariance matrix of 10 day continuously compounded returns is equal to CBA WOW a) b) c) d) BHP 0.001625 0.000658 0.000769 CBA 0.000658 0.001783 0.000536 WOW 0.000769 0.000536 0.001387 Define the Value at Risk (VaR) for the portfolio. Assuming portfolio weights of BHP (70%), CBA (55%), WOW (-25%), calculate the 99% 10 day relative VaR estimate (employ a z score measured to 2 decimal places) Briefly discuss one limitation with the method used in part b) and its implication for the VaR estimate. Explain how you could estimate the Value at Risk for the portfolio using monte carlo simulation.

Expert Answer:

Answer rating: 100% (QA)

a The Value at Risk VaR for a portfolio is a statistical measure that represents the maximum potential loss the portfolio could incur at a specified l View the full answer


answer-question
Related Book For  answer-question
Corporate Finance

Corporate Finance

ISBN: 9781260772388

13th Edition

Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe

See More Books
View Solution
Create a free account to access the answer
Cannot find your solution?
Post a FREE question now and get an answer within minutes. * Average response time.
Posted Date: July 08, 2023 04:36:16
See More Questions

Students also viewed these finance questions

Q:
Discuss what is meant by the mean-variance framework in the context of portfolio choice Consider a portfolio problem with n risky assets. Explain how one can construct the mean-variance frontier...
A:
In the context of portfolio choice the mean variance framework is a fundamental approach developed by Harry Markowitz to help investors make optimal decisions regarding their investment portfolios It......
Q:
Find the amplitude, period, and phase shift of function. Graph function. Show at least two periods. 2 3 - cos ( 6)
A:
Amplitude......
Q:
1. Use ethical reasoning to evaluate the actions of Shell management in this case with respect to accounting for and disclosing information about proved reserves. 2. In chapter 7 we discussed...
A:
1 Shell reported overstated proved reserves estimates and that led to materially misleading financial statements Investors U S and global rely on the accuracy of the financial statement information If......
Q:
You have a resistor and a capacitor of unknown values. First, you charge the capacitor and discharge it through the resistor. By monitoring the capacitor voltage on an oscilloscope, you see that the...
A:
Solve Because Q CV and C is constant Equation......
Q:
Satluj Cements Limited purchased a machine costing 15 million. As per suppliers warranty, the physical life of the machine is estimated to be eight years. However, the management would like to...
A:
1 2 In the second year profit and loss account depreciation of 5......
Q:
The Mainor School District is about to establish a 30-machine computer lab. It is considering six alternative means of acquiring and nancing the machines: 1. Buy the machines outright; cost will be...
A:
a Net expenditures Year 1 Year 2 Year 3 1 Buy outright 60 000 0 0 2 Finance with single payment note......
Q:
The bargaining power of suppliers increases when? A. more suppliers enter the market. B. It increases the importance of buyers for the supplier group. C. Change costs for buyers are decreasing. D....
A:
B It increases the importance of buyers for the suppli......
Q:
Parker Company acquires an 80% interest in Sargent Company for $300,000 on January 1, 2015, when Sargent Company has the following balance sheet: The excess of the price paid over book value is...
A:
CY1 Subsidiary Income 20 000 4 000 amortization 16 000 In......
Q:
a Kaylee Company manufactures rulers. At the beginning of May, the following information was supplied by its accountant: Direct materials inventory Work in process inventory Finished goods inventory...
A:
Click to View...
Q:
Why is a 100 per cent check not usual in auditing?
A:
A 100 check in auditing also known as a comprehensive or substantive audit approach is not common......
Q:
What criteria are there for assessing reliability of audit evidence?
A:
The reliability of audit evidence is crucial for auditors to form an opinion on the financial statements of an organization Auditors use various criteria to assess the reliability of audit evidence wh......
Q:
What is meant by representative population and sampling units?
A:
A representative population and sampling units are important concepts in the field of statistics and research They are fundamental to the process of c......
Q:
What criteria are there for assessing sufficiency?
A:
Assessing sufficiency typically involves evaluating whether something meets the necessary requirements or standards for a particular purpose The speci......
Q:
When should purchase goodwill be written off?
A:
Purchase goodwill should be written off when certain conditions or events indicate that the goodwill s value has been impaired meaning that it is no longer recoverable Impairment of goodwill occurs wh......
Q:
Jim must take five years worth of progress to complete his doctorate degree at ABC University. However, he enjoys the life of a student and is in no hurry to finish his degree. In any academic year,...
A:
Click to View...
Q:
What is taxable income, and what is the formula for determining taxable income?
A:
Taxable income is the amount of income su......
Q:
Use Figure 31.1 to answer the following questions. Suppose interest rate parity holds, and the current six-month risk-free rate in the United States is 2.3 percent. What must the six-month risk-free...
A:
We can rearrange the interest rate parity condition to answer t......
Q:
What is the price of a 25-year, zero coupon bond paying $1,000 at maturity, assuming semiannual compounding, if the YTM is: a. 6 percent? b. 8 percent? c. 10 percent?
A:
The price of a pure discount zero coupon bond is the present valu......
Q:
In Problem 17, suppose Raines Umbrella Corp. paid out $128,000 in cash dividends. Is this possible? If spending on net fixed assets and net working capital was zero, and if no new stock was issued...
A:
Answers and thorough Explanation a What is the companys net income for 2021 The companys net income......
Emerging Nanostructured Materials For Energy And Environmental Science Environmental Chemistry For A Sustainable World 23 2019 Edition - ISBN: 3030044734 - Free Book