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Solutions to Problem Set 2

Sample mean 0019876 sample standard deviation

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Unformatted text preview: – 1), where p t is the price of the stock in period t. This main objective of this question is to show some of the practical issues that arise when you need to implement the Value at Risk using real data. a) Using the prices in this file, compute the sequence of daily rates of return. Calculate the sample mean and the sample variance. Sample mean =  ­0.019876% Sample standard deviation = 0.01878718 Sample variance = (Sample standard deviation)2 = 0.000352958 b) Plot the empirical histogram using Excel. Plot the normal distribution function with mean and variance equal to the sample mean and sample variance. For this question, most students have used two different approaches. I think the best solution here is to determine certain bins for each interval and evaluate the weights attributed by the normal distribution for each of these bins. This is done by evaluating the cumulative normal distribution at the end of each interval and subtracting from it the cumulative normal distribution at the beginning of the int...
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