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ActSc 445/845
Assignment Four
Due Date: December 2, 2010.
Note:
445 students can work in teams of two for this assignment. No team
of three is allowed. A dropbox on UWACE will be created where you
will be asked to provide your computer ﬁles (Excel spreadsheet, R/Matlab
programs, etc.) for the assignment. Further instructions on what to hand in
and how to let us know who the team members are will be posted later on.
1. This exercise illustrates the dangers of using normal random variables
to approximate fattailed distributions. Write a program (or create a
spreadsheet) that does the following. Given
S
,
α
,
γ
,
θ
:
•
Simulate
S
draws from a Pareto random variable with parameters
γ,θ
.
•
Find the mean
μ
and standard deviation
σ
of the simulated sam
ple.
•
Calculate VaR at the conﬁdence level
α
for a normal random vari
able with mean
μ
and standard deviation
σ
.
•
Compare the result based on the normal approximation with the
true VaR computed using the Pareto distribution.
To simulate the Pareto distribution, you can use that fact that when
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This note was uploaded on 12/12/2010 for the course ACTSC 445 taught by Professor Christianelemieux during the Fall '09 term at Waterloo.
 Fall '09
 ChristianeLemieux

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