Nikos is a senior manager in a large mutual fund, where he is working with two o

Question

Nikos is a senior manager in a large mutual fund, where he is working with two of his former students; Ryan and Thomas. They are responsible for the regional portfolios of the fund in Greece (Ryan) and Italy (Thomas), currently valued at $50 million each. The Greek portfolio is expected to make 8% next year with = 0.3, while the Italian portfolio has expected return 4%. The returns of both are distributed normally. Nikos has asked his colleagues to estimate the Value-at-Risk at the 10% for each position.

1. Provide a 95% confidence interval for the value of the Greek portfolio.

2. Help Ryan estimate V aR10% of the Greek portfolio.

3. Thomas finds that the V aR10% of his portfolio is exactly the same as Ryan’s. What is the standard deviation of the Italian portfolio?

Explanation / Answer

Nikos is a senior manager in a large mutual fund, where he is working with two o

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