Financial Risk Manager Part 1
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A risk manager at a small bank is using Euler's theorem to calculate the contributions of individual loans to the VaR of a loan portfolio. The portfolio VaR is GBP 20,300. Information on the 3 loans in the portfolio is shown below:
| Loan 1 | Loan 2 | Loan 3 | |
|---|---|---|---|
| Loan amount (GBP) | 180,000 | 200,000 | 160,000 |
| Loan VaR (GBP) | 10,000 | 8,000 | 9,500 |
| Increase in portfolio VaR if loan VaR is increased by 1% | 58.1 | 65.6 | ? |
| Loan pair | Correlation |
|---|---|
| Loan 1 and Loan 2 | 0.1 |
| Loan 1 and Loan 3 | 0.1 |
| Loan 2 and Loan 3 | 0.8 |
Which of the following is closest to the contribution of Loan 3 to the portfolio VaR?