AssignmentFourQuestions

AssignmentFourQuestions - ActSc 445/845 Assignment Four Due...

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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 drop-box on UW-ACE 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 risk-free 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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AssignmentFourQuestions - ActSc 445/845 Assignment Four Due...

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