Reference no: EM133111542
Consider the following portfolio of stocks and options:
- $5 million invested in Stock A at stock price of $20 per share
- $3 million invested in Stock B at stock price of $50 per share
- Options on Stock A with a total delta of -8,000
- Options on Stock B with a total delta of +4,000
The standard deviations for daily returns on Stocks A and B are 0.012 and 0.0065, respectively. The correlation coefficient of daily returns on the two stocks is 0.45.
a) Calculate the five-day, 99% VaR for the portfolio.
b) If the average daily returns on Stocks A and B are 0.00067 and 0.00015, respectively, what is the five-day, 99% ES for the portfolio?
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