Var Marginal

FRM
#1

Hello,

Please help me for the below question:

  1. Consider a two asset portfolio. The portfolio weight of asset A is 0.6 and the portfolio weight of asset B is 0.4 . The value of the total portfolio is 1 million and standard deviation of its decimal return is 0.060606. If the Betas of Asset A and asset B are 0.8 and 1.3 repectively, the repective marginal Var of Asset A and the component Var of Asset B at 95% confidenve level are closest to: a. USD 0.80 and USD 52,000 b. USD 0.80 and USD 48,000 c. USD 0.08 and USD 52,000 d. USD 0.08 and USD 48,000 Thanks, Vishal
#2

option C

#3

Hello Srishti,

Thanks for the reply!!

Can you please tell me the steps, how you arrived to the answer?

Thanks,

Vishal

#4

Hello Srishti,

Thanks for the reply!!

Can you please tell me the steps for the same?

Thanks in advance.

Vishal;

#5

I simply put values in the formulae, shown below

Pf VaR = z* Std Dev * Pf value

1.65*0.060606*1,000,000=99,999.9 100,000

MVAR Asset A = (VAR (Pf)/ Pf Value) *Beta

= (100,000/1,000,000) * 0.8=0.08

Component Var for Asset B = Mvar (B) * Wt of B * Pf Value

= [(VAR (Pf)/ Pf Value) *Beta] * Wt of B * Pf Value

= Var Pf *Beta * Wt of Asset B

= 100000* 1.3* 0.4 = 52000

Hope this helps, coz its quite an effort to type out all this :expressionless:

#6

Thanks a lot Shristi!!