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Problem:

Suppose that daily gains (losses) are normally distributed with a standard deviation of 5 million.

Required:

Question 1: Estimate the minimum regulatory capital the bank is required to hold. (assume a multiplicative factor of 4.0)

Question 2: Estimate the economic capital using a one year time horizon and a 99.9% confidence level assuming that there is a correlation of 0.05 between gains (losses) on successive days.

Note: Be sure to show how you arrived at your answer.

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Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M91162061

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