Suzanne Evans
Well-Known Member
Questions:
210.1. A portfolio has a current value of $40.0 million and its geometric returns are normally distributed with mean of 12.0% and volatility (standard deviation) of 40.0%. Because the geometric returns are normal, the future value of the portfolio has a lognormal distribution. If the returns are i.i.d., what is the 10-day lognormal value at risk (lognormal VaR)?
a. $2.91 million
b. $3.86 million
c. $4.77 million
d. $5.07 million
210.2. In regard to parametric value at risk (VaR) approaches, each of the following is true EXCEPT for:
a. Parametric VaR can model heavy tails by assuming, for example, a mixture-of-normals distribution, a Levy process, or a jump-diffusion process
b. Delta-normal (parametric) absolute VaR always increases with a higher confidence level
c. Delta-normal (parametric) absolute VaR always increases with a longer holding period
d. Scaling a delta-normal VaR with the square root rule (SRR) necessarily assumes that returns are i.i.d.
210.3. A $100.0 million portfolio (P) is equally-weighted in two assets such that the current value of each position is $50.0 million. If the delta-normal component value at risk (component VaR) of one position (i) is $14.7 million and the beta of the position with respect to the portfolio, beta(i, P), is 1.60, what is the portfolio VaR?
a. $6.000 million
b. $18.375 million
c. $23.925 million
d. $34.500 million
Answers:
210.1. A portfolio has a current value of $40.0 million and its geometric returns are normally distributed with mean of 12.0% and volatility (standard deviation) of 40.0%. Because the geometric returns are normal, the future value of the portfolio has a lognormal distribution. If the returns are i.i.d., what is the 10-day lognormal value at risk (lognormal VaR)?
a. $2.91 million
b. $3.86 million
c. $4.77 million
d. $5.07 million
210.2. In regard to parametric value at risk (VaR) approaches, each of the following is true EXCEPT for:
a. Parametric VaR can model heavy tails by assuming, for example, a mixture-of-normals distribution, a Levy process, or a jump-diffusion process
b. Delta-normal (parametric) absolute VaR always increases with a higher confidence level
c. Delta-normal (parametric) absolute VaR always increases with a longer holding period
d. Scaling a delta-normal VaR with the square root rule (SRR) necessarily assumes that returns are i.i.d.
210.3. A $100.0 million portfolio (P) is equally-weighted in two assets such that the current value of each position is $50.0 million. If the delta-normal component value at risk (component VaR) of one position (i) is $14.7 million and the beta of the position with respect to the portfolio, beta(i, P), is 1.60, what is the portfolio VaR?
a. $6.000 million
b. $18.375 million
c. $23.925 million
d. $34.500 million
Answers:
