(i) You hold a portfolio consisting of a long position of 1 share of stock...
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(i) You hold a portfolio consisting of a long position of 1 share of stock A. The stock price today is S0 = $100. The daily log returns X1, X2, . . . of stock A are assumed to be independent and normally distributed with zero mean and standard deviation = 0.1. With denoting the distribution function of N (0, 1) (standard normal distribution) it holds that [^ 1] (0.99) = 2.33.
(a) Define VaR(X ) with [0,1].
(b) Let L1 be the 1-day portfolio loss. Compute VaR0.99 (L1) (Value-at-Risk).
Hint: Use some of the following information:
e^2.33 = 0.097, e^0.233 = 0.79, e^0.0233 = 0.98
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You can see the logs in the Dashboard.