Question: K or 20 marks will be deducted. Assume stock returns follow a multivariate normal distribution. If all marginal VaRs of a portfolio of n stocks,

K or 20 marks will be deducted. Assume stock returns follow a multivariate normal distribution. If all marginal VaRs of a portfolio of n stocks, namely S1, S2, . .. , Spy are zero and the weights on S, and $2 are non-zero, would the VaR be increased, decreased or unchanged by selling out all S, for Sz? Explain. Is it possible to have a zero VaR portfolio of only risky assets with normal returns? If yes, give an example. If no, justify. (10 marks) Use your own words to explain why Type I error can be fixed but Type

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