PROBLEMFORVAR ANDESSuppose that each of two investments has a 0.9% (.009) chance of a loss of $10 million, a 99.1% chance of a loss of $1 million, and 0% chance of a profit. The investments are independent of each other. a.What is the VaR for one of the investments when the confidence level is 99%?b.What is the expected shortfall for one of the investments when the confidence level is 99%?c.What is the VaR for a portfolio consisting of the two investments when the confidence level is 99%?d.What is the expected shortfall to a portfolio consisting of the two investments when the confidence level is 99%?e.Show that in this example VaR does not satisfy the subadditivity condition whereas expected shortfall does.
You've reached the end of your free preview.
Want to read the whole page?
- Spring '13
- Rossomano
- Probability, var, Value at risk, Confidence Level, Expected shortfall
