12-2 - VaR = Value at Risk-newer term-attempts to measure...

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Derivatives December 2 Expected Portfolio Return = (x 1 r 1 ) + (x 2 r 2 ) Portfolio Variance = x 1 2 σ 1 2 + x 2 2 σ 2 2 + 2(x 1 x 2 1 σ 2 ) P = correlation -1.0 < P < 1.0 √variance = standard deviation return = weighted average *no diversification benefit to returns *we can translate diversification benefit into a dollar amount
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Unformatted text preview: VaR = Value at Risk-newer term-attempts to measure risk-risk defined as potential loss-limited use to risk managers Factors-asset value-daily volatility-Days-confidence interval *Use business days!...
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This note was uploaded on 12/21/2011 for the course SPEA V366 taught by Professor Aleksey during the Fall '11 term at UCSB.

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