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A risk manager is reviewing the current holdings of a portfolio of investments. If the portfolio had been held over the past 3 years (750 business days), the worst 10 losses would have been 377.5, 280, 2201, 124, 666.67, 756, 897, 5645, 435, 3689. The current one day VAR using a 3 year lookback at the 99% confidence level is 406.25.

The manager is considering a $10mm portfolio of 2 assets. The first asset is in the amount of $3.5mm and the std deviation of 7.5%. The second asset is in the amount of $6.5mm and has a standard deviation of 4%. The correlation coefficient, rho, between the 2 assets is 0.31. What is the standalone VAR of each asset at the 95% confidence level? If it is less than the sum of the 2 standalone VARs, explain why.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92810263

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