Calculate the combined lvar to var ratio

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Reference no: EM132019988

Question: The observed bid and ask of stock XYZ are 15.57 and 15.71, respectively. XYZ has an estimated annualized return volatility of 25%. Assume sspread=0.005 and 250 trading days in one year.

a. Estimate the 1-day, 95% VaR of a 5,000 share position in stock XYZ.

b. Estimate the 1-day 95% LVaR of the position, using the constant spread approach.

c. Estimate the LVaR to VaR ratio using the exogenous spread approach.

d. Suppose the position represents 10% of the size of the market and price elasticity of demand for stock XYZ is -0.6. Calculate the LVaR to VaR ratio using the endogenous price approach.

e. Calculate the combined LVaR to VaR ratio incorporating both exogenous and endogenous effects.

Reference no: EM132019988

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