monsieuruzairo3
Member
hi @David Harper CFA FRM CIPM
Following ais a question from section on Portfolio Analytical methods P2.T8.2.
2.2. A $10 million portfolio is equally invested in two currencies: $5 million in Swiss francs
(CHF) and $5 million in Japanese yen (JPY). The volatility of CHF is 10%; the volatility of the
JPY is 20%. The two currencies have a correlation of 0.30. If we assume a 95% confident
delta normal value at risk (VaR), what is the marginal value at risk (marginal VaR) of the
Swiss franc (CHF) position with respect to the two-asset portfolio that includes the CHF
position; i.e., 95% confident marginal VaR (CHF, Two-asset Portfolio)?
a) 0.106
b) 0.304
c) 0.633
d) 1.124
The answer provided:
2.2. A. 0.106
Per Jorion 7.17: Marginal VaR = Covariance / Portfolio volatility * deviate
Covariance (CHF, Portfolio) = 50% weight * 10%^2 + 50% weight * 10% * 20% * 0.30
= 0.0080;
Portfolio volatility = 12.450%; Deviate @ 95% = 1.645;
Marginal VaR = 0.0080/12.45% * 1.645 = 0.1057
Alternative, per Jorion 7.20: Marginal VaR = Portfolio VaR/W * beta (i,P)
Portfolio VaR = $1.245 million* 1.645 = $2.048 million;
Beta (CHF, Portfolio) = 0.5161
Marginal VaR = $2.048 million / $10 million * 0.5161 = 0.1057
I think the highlighted step is incorrect since weights are not squared as they should be
My approach: My Portfolio std. dev is the same as calculated above
I think used a matrix to calculate Dollar Covariance (Ra, Rp)
[Cov Ra,Rp] = [0.1^2 *5]
MVAR(A) = 1.65*.05/(.1245*10)
I saw this issue with the some of the questions from the reading too. Please suggest
KR
Uzi
Following ais a question from section on Portfolio Analytical methods P2.T8.2.
2.2. A $10 million portfolio is equally invested in two currencies: $5 million in Swiss francs
(CHF) and $5 million in Japanese yen (JPY). The volatility of CHF is 10%; the volatility of the
JPY is 20%. The two currencies have a correlation of 0.30. If we assume a 95% confident
delta normal value at risk (VaR), what is the marginal value at risk (marginal VaR) of the
Swiss franc (CHF) position with respect to the two-asset portfolio that includes the CHF
position; i.e., 95% confident marginal VaR (CHF, Two-asset Portfolio)?
a) 0.106
b) 0.304
c) 0.633
d) 1.124
The answer provided:
2.2. A. 0.106
Per Jorion 7.17: Marginal VaR = Covariance / Portfolio volatility * deviate
Covariance (CHF, Portfolio) = 50% weight * 10%^2 + 50% weight * 10% * 20% * 0.30
= 0.0080;
Portfolio volatility = 12.450%; Deviate @ 95% = 1.645;
Marginal VaR = 0.0080/12.45% * 1.645 = 0.1057
Alternative, per Jorion 7.20: Marginal VaR = Portfolio VaR/W * beta (i,P)
Portfolio VaR = $1.245 million* 1.645 = $2.048 million;
Beta (CHF, Portfolio) = 0.5161
Marginal VaR = $2.048 million / $10 million * 0.5161 = 0.1057
I think the highlighted step is incorrect since weights are not squared as they should be
My approach: My Portfolio std. dev is the same as calculated above
I think used a matrix to calculate Dollar Covariance (Ra, Rp)
[Cov Ra,Rp] = [0.1^2 *5]
MVAR(A) = 1.65*.05/(.1245*10)
I saw this issue with the some of the questions from the reading too. Please suggest
KR
Uzi