The market portfolio of an investment bank has a current value of $15mln and a daily...

 

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The market portfolio of an investment bank has a current value of $15mln and a daily standard deviation of 100 basis points. A. The Chief Risk Officer (CRO) want calculates the market risk of the portfolio using the delta-normal approach. Find the 99% 1-day Value-at-Risk (VaR). B. In his back-testing, the CRO finds that during the last year, the ten worst losses have been as follows: $500,000, $450,000, $400,000, $360,000, $350,000, $290,000, $280,000, $275,000, $255,000, $230,000. What can the CRO conclude about the quality of the risk model? Explain the reasons behind your statement. C. If you know that the portfolio is mainly made of derivative instruments, which alternative methodologies would you recommend the CRO to use to have a better estimation of the market losses? Clearly explain why these alternative methodologies are better than the delta-normal approach. The market portfolio of an investment bank has a current value of $15mln and a daily standard deviation of 100 basis points. A. The Chief Risk Officer (CRO) want calculates the market risk of the portfolio using the delta-normal approach. Find the 99% 1-day Value-at-Risk (VaR). B. In his back-testing, the CRO finds that during the last year, the ten worst losses have been as follows: $500,000, $450,000, $400,000, $360,000, $350,000, $290,000, $280,000, $275,000, $255,000, $230,000. What can the CRO conclude about the quality of the risk model? Explain the reasons behind your statement. C. If you know that the portfolio is mainly made of derivative instruments, which alternative methodologies would you recommend the CRO to use to have a better estimation of the market losses? Clearly explain why these alternative methodologies are better than the delta-normal approach.

Answer rating: 100% (QA)

Answer A At 99 confidance level Z score 2576 one day standard deviation in 15000000 1 150000 1 Day VAR 150000 2576 386400 B Out of the 10 possible wor... View the full answer