Suppose you have two independent investments: A and B. Investment A has a 3.5% chance of...
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Suppose you have two independent investments: A and B. Investment A has a 3.5% chance of a loss of £9 million, a 2% chance of a loss of £1.5 million, a 88% chance of a profit of £2 million, a 5% chance of a profit of £4 million, and a 1.5% chance of a profit of £11 million. Investment B has a 3% chance of a loss of £7 million, a 5% chance of a loss of £2 million, and a 92% chance of a profit of £5 million. a) b) c) What are the 95% value at risk and expected shortfall of each investment? [10 marks] What is the 95% value at risk and expected shortfall of both investments combined? [10 marks] Explain why value at risk is not a coherent risk measure. [5 marks] Suppose you have two independent investments: A and B. Investment A has a 3.5% chance of a loss of £9 million, a 2% chance of a loss of £1.5 million, a 88% chance of a profit of £2 million, a 5% chance of a profit of £4 million, and a 1.5% chance of a profit of £11 million. Investment B has a 3% chance of a loss of £7 million, a 5% chance of a loss of £2 million, and a 92% chance of a profit of £5 million. a) b) c) What are the 95% value at risk and expected shortfall of each investment? [10 marks] What is the 95% value at risk and expected shortfall of both investments combined? [10 marks] Explain why value at risk is not a coherent risk measure. [5 marks]
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Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
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