2. You are given with the following information on your portfolio: you have a $6million...
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2. You are given with the following information on your portfolio: you have a $6million portfolio that consists of two funds. The historical daily rates of return for these assets are shown in the following table. That is, these are the sampled 7-day observations from the daily rates of return for the funds and applied for estimates for the volatility.
Fund1
12.5%
-9.75%
17.92%
11.07%
8.19%
19.45%
-7.16%
Fund2
-3.74%
14.59%
21.49%
21.7%
6.38%
22.16%
-9.41%
Answer the following questions:
a) Find estimates for the volatility of each fund (in terms of standard deviation) on the samples given above.
b) Suppose you own $2 million worth of fund 1, what is the one-year (95%-confidence) VaR for this fund if normal distribution is assumed?
c) Suppose you own $4 million work of fund 2, what is the one-year (95%-confidence) VaR for this fund?
d) Let the correlation coefficient between these two funds be 0.67. What is the 7-day 95%VaR for your portfolio with the above allocation in fund 1 and fund 2?
e) Now suppose you want to apply the Random Resampling approach for this portfolio. Suppose you apply 15 replications. What is the (95%-confidence) VaR for this portfolio now?
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