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What is the var for one of the investments

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Suppose that you have two investments, each of which has a 0.9% chance of a loss of $10 million and a 99.1% chance of a loss of $1 million. These two investments are independent of each other.

(1) What is the VaR for one of the investments at the 99% confidence level?

(2) What is the expected shortfall for one of the investments at the 99% confidence level?

(3) What is the 99% VaR for a portfolio consisting of the two investments?

(4) What is the 99% expected shortfall for a portfolio consisting of the two investments?

(5) Verify that VaR does not satisfy the subadditivity condition in this example whereas expected shortfall does.

Reference no: EM132675707

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