Make any reasonable assumptions you need to answer the question below. Question:VaR You are a US resident
Question:
Make any reasonable assumptions you need to answer the question below.
Question:VaR
You are a US resident holding $10m in 30 US stocks and 30m in50 German stocks. In addition you hold 1.5m plain vanilla Euorpean call options on Apple stocks., each with a premium of $10. The call premium has a delta of 0.5 and a gamma of 0.01.
1a) Outline the steps you would take to forecast the one day Value at Risk (VaR) at the 1st percentile, using the variance-covariance method. Explain any assumptions used and the strengths and weaknesses of your approach.
1b). Repeat the exercise in part "a" using the bootstrap method.
Make any reasonable assumptions to give a clear logical answer.
You may use illustrative figures, algebra, equations and diagrams as you see fit.
Data Analysis and Decision Making
ISBN: 978-0538476126
4th edition
Authors: Christian Albright, Wayne Winston, Christopher Zappe