FRM二级精选题型解析:The Westover Fund is a portfolio

The Westover Fund is a portfolio consisting of 42 percent fixed income investments and 58 percent equity investments.

The manager of the Westover Fund recently estimated that the annual VAR(5 percent),

assuming a 250-day year, for the entire portfolio was $1,367,000 based on the portfolio’s market value of $12,428,000 and a correlation coefficient between stocks and bonds of zero.

If the annual loss in the equity position is only expected to exceed $1,153,000 5 percent of the time,

then the daily expected loss in the bond position that will be exceeded 5 percent of the time is closest to:

A) $72,623.

B) $46,445.

C) $55,171.

D) $21,163.




B was correct
Begin by using the formula for dollar portfolio VAR to compute the annual VAR(5%) for the bond position:
VAR2 ortfolio = VAR2 tocks + VAR2 onds + 2VARStocksVARBonds ρStocks, Bonds (1,367,000)2 = (1,153,000)2 + VAR2 onds + 2(1,153,000)VARBonds(0) VARBonds = [(1,367,000)2 – (1,153,000)2]0.5 = 734,357
Next convert the annual $VARBonds to daily $VARBonds: 734,357 / (250)0.5 = 46,445