17. The bank’s trading book consists of the following two assets:\

Correlation (A, B) = 0.2

How would the daily VaR at 99% level change if the bank sells 50 worth of asset A and buys 50 worth of asset B? Assume there are 250 trading days in a year.

a. 0.2286

b. 0.4581

c. 0.7705

d. 0.7798

Hi, I found this questions from practice exam, I am not sure my understanding is right, can anyone verify if my solution is correct? thanks

First Step: Calculate one day portfolio sigma and portfolio return from original position:

Sigma P = sqrt( wA^2*SigmaA^2 + wB^2*SigmaB^2 + 2*wA*wB*SigmaA*SigmaB*correlation)

Sigma P (1day)=Sigma P/sqrt(250)

E(Rp 1day)= wA*rA+wB*rB/250

VaR(P 1day)=(Sigma P(1day)*2.33-E(Rp1day) ) * (100+50)

Second Step: Calculate one day portfolio sigma and return after position change, which wA=0.33 wB=0.67, other things are same => new VaR(P 1day)

Finally, Use VaR(P 1day)-new VaR(P 1day) =>my answer is about 0.4866 similar to B but not exactly same, so this is why I want to make sure if it's correct. thanks

Correlation (A, B) = 0.2

How would the daily VaR at 99% level change if the bank sells 50 worth of asset A and buys 50 worth of asset B? Assume there are 250 trading days in a year.

a. 0.2286

b. 0.4581

c. 0.7705

d. 0.7798

Hi, I found this questions from practice exam, I am not sure my understanding is right, can anyone verify if my solution is correct? thanks

First Step: Calculate one day portfolio sigma and portfolio return from original position:

Sigma P = sqrt( wA^2*SigmaA^2 + wB^2*SigmaB^2 + 2*wA*wB*SigmaA*SigmaB*correlation)

Sigma P (1day)=Sigma P/sqrt(250)

E(Rp 1day)= wA*rA+wB*rB/250

VaR(P 1day)=(Sigma P(1day)*2.33-E(Rp1day) ) * (100+50)

Second Step: Calculate one day portfolio sigma and return after position change, which wA=0.33 wB=0.67, other things are same => new VaR(P 1day)

Finally, Use VaR(P 1day)-new VaR(P 1day) =>my answer is about 0.4866 similar to B but not exactly same, so this is why I want to make sure if it's correct. thanks

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