Show that in this example VaR does not satisfy the suadditivity condition

Show that in this example var does not satisfy the

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e. Show that in this example VaR does not satisfy the suadditivity condition whereas expected shortfall does. 4. Suppose that the change in the value of a portfolio over a one day time period is normal with a mean of zero and a standard deviation of $2 million. What is a. The one day 97.5% VaR b. The five day 97.5% VaR c. The five day 99% VaR . Suppose that each of two investments has a 0.9% chance of loss of $10 million, a 99.1% of a loss of $1 million and 0% chance of a profit. The investments are independent of each other. a.What is the VaR for one of the investments when the confidence level is 99%? b.What is the expected shortfall for one of the investments when the confidence level is 99%? c.What is the VaR for a portfolio consisting of the two investments when the
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confidence level is 99%? d.What is the expected shortfall for a portfolio consisting of the two investments when the confidence level is 99%? e. Show that in this example VaR does not satisfy the suadditivity condition whereas expected shortfall does. Answers 3.
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  • Spring '13
  • Rossomano
  • Normal Distribution, Portfolio Manager, $2 million, Value at risk, Expected shortfall, $ 1 million

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