AssignmentFour

AssignmentFour - 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

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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 drop-box on UW-ACE 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 fat-tailed 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.

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AssignmentFour - 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

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