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How much does diversification reduce the var

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Reference no: EM132942264

Consider a position consisting of a $200,000 investment in Microsoft shares and a $300,000 investment in BP shares. Suppose that the daily volatilities of these two assets are 0.95% and 1.02%, respectively, and that the coefficient of correlation between their returns is 0.56.

Problem 1: What is the 10-day 97.5% value at risk for the portfolio?

Problem 2: By how much does diversification reduce the VaR?

Reference no: EM132942264

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