ActSc 445/845
Assignment Four
Due Date: December 1, 2009.
Note:
445 students can work in teams of two for this assignment. No team
of three is allowed. You should use Excel for questions 1, 2b, and 3b (and
may choose to use it for part of question 4). A dropbox on UWACE will
be created for this assignment.
1. Consider a portfolio that consists of a short position in ten call options
on ten diﬀerent stocks, each with initial value 100, expected return
rate of 15%, volatility of 0.4, and strike price of 100. The initial value
of the portfolio is 0, as the money received from selling the options
is invested in a riskfree account earning 5% interest rate compounded
continuously. The correlation between the returns on each pair of stocks
is 0.3. The options’ expiration time is 0.5 years.
(a) Compute VaR for
α
= 0
.
95 and
n
= 10 days using the Delta
Normal method.
(b) Repeat (a) with a correlation of 0
.
7 between all pairs of stocks.
(c) Repeat (a) with
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 Spring '09
 ChristianeLemieux
 Normal Distribution, Standard Deviation, Variance, Probability theory, var

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