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Compute the 10-day a portfolio var

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Suppose you have 3 assets with N-day arithmetic returns that obey a multivariate normal distribution rN ∼ N30; ΣN where ΣN = ErNrT N =24 Nσ21 Nρ12σ1σ2 Nρ13σ1σ3 Nρ12σ1σ2 Nσ22 Nρ23σ2σ3Nρ13σ1σ3 Nρ23σ2σ3 Nσ32 35where σ1 = 0:03, σ2 = 0:015, σ3 = 0:022, ρ12 = ρ13 = 0:5 and ρ23 = 0. You hold a portfolio consisting of $15 million in asset 1, $3 million in asset 2 and $7 million in asset 3.

(a) Compute the 10-day α = 0:95 VaR separately for each of the 3 individual assets.

(b) Compute the 10-day α = 0:95 portfolio VaR. How does it compare to the sum of theindividual asset VaR values computed above?

Reference no: EM133111311

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