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Dear of the aggregate portfolio

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The portfolio manager of ABC Bank is estimating the aggregate DEAR of the bank's portfolio of assets consisting of loans (L), foreign currencies (FX), and common stock (EQ). The individual DEARs are $300 000, $250 000 and $125 000, respectively. If the correlation coefficients between L and FX, L and EQ, and FX and EQ are 0.2, -0.3, and 0.4, respectively, what is the 10-day Value at Risk (VaR) of the aggregate portfolio? Why is the sum of the individual DEARs greater than the DEAR of the aggregate portfolio?

Reference no: EM133004967

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