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A passive long only Equity portfolio Manager with asset under management (AUM) of $ 1.5...

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Question

Accounting

A passive long only Equity portfolio Manager with asset under management (AUM) of $ 1.5 Billion has the following investments:

Index

Google Ticker

Yahoo Ticker

Currency

% of Portfolio

Dow Jones

INDEXDJX:DJI

^DJI

USD

20%

S&P 500

INDEXSP:INX

^GSPC

USD

30%

FTSE 250

INDEXFTSE:MCX

^FTMC

GBP

15%

TSX 100

INDEXTSI:OSPTX

^GSPTSE

CAD

5%

DAX performance

INDEXDB:DAX

^GDAXI

EUR

10%

CAC 40

INDEXEURO:PX1

^FCHI

EUR

10%

SENSEX

INDEXBOM:SENSEX

^BSESN

INR

10%

Table 1: Passive Portfolio Position

The Manager is interested in knowing:

a)VaR at 99%

b)Var at 99.5%

c)ES at 99%

d)ES at 99.5%

The manager asks the risk analyst [1]to construct the following scenarios:

1a) Using the past five years of data compute the VAR and ES at 99% and 99.5% using historical simulation method?

1b) Using the past five years of data compute the VAR and ES at 99% and 99.5%. Assume that the losses/gains are normally distributed with mean = mean of Losses/gains and SD = standard Deviation of Losses/gains.

[1] The data for the index is provided in which currency is quoted indirectly (1 USD = x local currency)

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