Your portfolio consists of $10 million invested in the...

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Finance 567 Spring 2020 Financial Risk Management Neil D. Pearson 1 Name: Solution to In-Class Exercise 4 Monday, February 3, 2020 (4 points) 1. Your portfolio consists of $10 million invested in the portfolio that underlies the S&P 500 index, and you use historical simulation compute its value-at-risk. In this computation, you use the 1,000 most recent returns on the index, a one-day horizon, and a probability of 1%. As of the close of trading yesterday, the largest return in the database of 1,000 past returns is 2.97% and the smallest is 4.21%. As of the close of trading yesterday, your VaR was $260,000. Today, the return on the index is 5.13%. You know that large returns on the index are typically followed by additional large returns. As of the close of trading today, will your VaR be equal to $260,000, greater than

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