12 Jul WHAT IS THE 1% WORST DAILY CHANGE IN THE NASDAQ IN THE PERIOD CONSIDERED?
Please use this attached documents to answer the questions. Document Preview: 1. Your portfolio consists of a $300,000 investment in gold and a $500,000 investment in silver. You estimate that the daily volatilities of gold and silver are 1.8% and 1.2% respectively, and that the coefficient of correlation between their returns is 0.6. i. What is the 10-day 97.5% VaR for the portfolio? ii. By how much does diversification reduce the VaR? 2. In the attached Excel file, you are given the values for the Nasdaq index during the 1,500 days preceding March 10, 2006, listed starting with the oldest value (see DATA sheet). A_ Use this data to calculate the one-day 99% VaR on March 10, 2006, for a $10 million portfolio invested in the index using three approaches: (a) The basic historical simulation approach; (b) The basic historical simulation approach with exponential weighting scheme; (c) A model where daily returns are assumed to be normally distributed; B_ Discuss the reasons for the differences between the results you get above. Make sure to answer the list of questions in the XL file (see the worksheet QUESTIONS) in the work book. Here are the questions: 1 Calculate the mean, std dev, skewness and kurtosis of returns. 2 Plot the 1500 data point in GRAPH 1 3 Compute the returns. Plot an histogram of the returns; impose the normal distribution on the histogram as well in GRAPH 1 4 Compute the volatility of daily returns in each calendar year 5 Plot the computed volatilities in GRAPH 2 6 What is the absolute worst daily change in the Nasdaq in the period considered? 7 What is the 1% worst daily change in the Nasdaq in the period considered? 8 What is the 1-day 99% VaR? 9 What is the 1-day 99% VaR when weights are assigned using an exponential scheme? ? = 0.995 10 What is the 1-day 99% VaR when weights are assigned using an exponential scheme? = 0.985 In order to answer the questions, you need to perform operations on the data using Excel. In particular, the columns with red titles/yellow fill need to be… Attachments: Risk-Problem…..docxRISK-Problem-….xlsx
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