TADA Inc. is concerned with the Value at Risk (VaR) of its shareholdings. TADA Inc....
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TADA Inc. is concerned with the Value at Risk (VaR) of its shareholdings. TADA Inc. holds $20 million worth of Enphase Inc. shares; $15 million of SolarEdge Inc. shares and $25 million worth of Zoom Inc. shares. TADA Inc. assumes that the standard deviation of yearly stock returns are 0.28, 0.30 and 0.32 for Enphase, SolarEdge, and Zoom, respectively. Further, TADA assumes that all daily stock returns follow a normal distribution with zero mean.
Calculate the individual daily 99% VaR for TADAs holdings in Enphase, SolarEdge, and Zoom
(4 marks)
TADA estimates the following correlations
i,j
i
Enphase
SolarEdge
Zoom
j
Enphase
1
0.9
-0.5
SolarEdge
1
0.0
Zoom
1
Calculate the daily 99% VaR of TADAs entire portfolio of shareholdings.
(4 marks)
Assess the validity of the distributional assumptions that are incorporated into TADAs VaR estimate. (use your own words)
(4 marks)
How could the VaR method be altered to alleviate its problems? Name one possible alteration and what are the weaknesses of the alternative methodology? (use your own words)
Answer & Explanation
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