Question 12.5Suppose that each of two investments has a 0.9% chance of $10Mloss and a 99.1% chance of $1M loss in 1 year. The investmentsare independent of each other. (a) What is VaR (1 year, 99%) for one of the investments? (b) What is ES (1 year, 99%) for one of the investments?
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(c) What is VaR (1 year, 99%) for a portfolio consisting of the twoinvestments? (d) What is ES (1 year, 99%) for a portfolio consisting of the twoinvestments? (e) Show that VaR does not satisfy the sub-additivity conditionwhereas ES does.
Answers:
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- Spring '15
- Management, Normal Distribution, Standard Deviation, var, Portfolio Manager, 3 months, 0.9%
