Explanation:

\text{VaR}_{\text{Bambino}} = 98 \text{ million} \times 0.24 \times 1.65 = 38.81 \text{ million}

The fact that $\beta_i$ equals the product of the correlation $\rho_i$ and $\sigma_i$ divided by the portfolio $\sigma_P$ is taken into account to further simplify the portfolio VaR:

\text{CVaR}_i = \text{VaR} w_i \beta_i = (\alpha \sigma_P W) w_i \beta_i = (\alpha \sigma_i w_i W) \rho_i = \text{VaR}_i \rho_i

The component VaR for Bambino Entertainment ( $\text{CVaR}_{\text{Bambino}}$ ) can be presented as = $\text{VaR}_{\text{Bambino}} \times \text{Correlation of Bambino With the portfolio} = 38.81 \times 0.6 = 23.28 \text{ million}$

Q.3150 Sasha Lamb is a portfolio manager at Lizard Financial. She is evaluating the risks of a portfolio of stocks. The portfolio's net asset value (NAV) is `$950` million and contains `$98` million invested in the common stocks of Bambino Entertainment. The annual standard deviation of returns for Bambino Entertainment is 24% and the annual standard deviation of the overall portfolio is 19%. The correlation of returns between Bambino Entertainment and the portfolio is 0.6. Using a 1-year 95% VaR and assuming that the returns are normally distributed, the component VaR of Bambino Entertainment is closest to:

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Last updated: July 5, 2026 at 07:07

$62.09 million

$23.28 million

$38.81 million

$15.52 million

Financial Risk Manager Part 2

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