Explanation:
Diversified VAR (DVAR) = z × Std Dev × Portfolio Value
= 1.645 × 0.060606 × 1000000 = 99696.87
Marginal VAR of Asset A = DVAR ×
= 99696.87 × = $0.079757496 ≈ 0.08$
Component VAR of Asset B = DVAR × β_B × Weight of Asset B
= 99696.87 × 1.3 × 0.4 = 51,842.37
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Q.3162 Consider a two-asset portfolio. The portfolio weight of Asset A is 0.6 and the portfolio weight of Asset B is 0.4. The value of the total portfolio is USD1 million and the standard deviation of its decimal return is 0.060606. If the betas of Asset A and Asset B are 0.8 and 1.3 respectively, the respective marginal VAR of Asset A and the component VAR of Asset B at a 95% confidence level are closest to:
A
USD 0.80 and USD 32,000
B
USD 0.80 and USD 99,999.9
C
USD 0.08 and USD 51,842.37
D
USD 0.08 and USD 48,000
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