Explanation:
Since each receives the same amount, the allocation for each is:
\frac{\`$4`,000}{4} = \`$1`,000 \text{ million}The risk budget is then:
\text{VaR} = \alpha \sigma W \\ = 1.65 \times 0.101 \times \`$1`,000 = \`$166.65` \text{ million}Ultimate access to all questions.
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Q.4707 Consider a pension fund that wants to allocate $4,000 million to a pool of 4 active managers to maximize the information ratio of the fund subject to the overall volatility of 10.1%. Suppose that they each receive the same amount. Using a 95% confidence level, what is the risk budget for each manager?
A
$404.00 million
B
$166.65 million
C
$666.60 million
D
$941.32 million