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A firm has a portfolio composed of stock A and B with normally distributed returns. Stock A has an annual expected return of 10% and annual...
A firm has a portfolio composed of stock A and B with normally distributed returns. Stock A has an annual expected return of 10% and annual volatility of 25%. The firm has a position of $100 million in stock A. Stock B has an annual expected return of 20% and an annual volatility of 20% as well. The firm has a position of $50 million in stock B. The correlation coefficient between the returns of these tow stocks is 0.2.
Compute the 5% annual VAR for the portfolio.
If the firm sells $10 million of stock A and buys $10 million of stock B, by how much does the 5% annual VAR change?
