Questions from Business Statistics

Q: Use stratified sampling with 100 trials to improve the estimate of in

Use stratified sampling with 100 trials to improve the estimate of in Business Snapshot 21.1 and Table 21.1.

Q: Explain why the Monte Carlo simulation approach cannot easily be used for

Explain why the Monte Carlo simulation approach cannot easily be used for American-style derivatives

Q: Consider a position consisting of a $100,000 investment in

Consider a position consisting of a $100,000 investment in asset A and a $100,000 investment in asset B. Assume that the daily volatilities of both assets are 1% and that the coefficient of correlatio...

Q: Some time ago a company entered into a forward contract to buy

Some time ago a company entered into a forward contract to buy £1 million for $1.5 million. The contract now has 6 months to maturity. The daily volatility of a 6-month zero-coupon sterling bond (when...

Q: The text calculates a VaR estimate for the example in Table 22

The text calculates a VaR estimate for the example in Table 22.9 assuming two factors. How does the estimate change if you assume (a) one factor and (b) three factors.

Q: A bank has a portfolio of options on an asset. The

A bank has a portfolio of options on an asset. The delta of the options is –30 and the gamma is 5. Explain how these numbers can be interpreted. The asset price is 20 and its volatility is 1% per day....

Q: Suppose that in Problem 22.12 the vega of the portfolio

Suppose that in Problem 22.12 the vega of the portfolio is 2 per 1% change in the annual volatility. Derive a model relating the change in the portfolio value in 1 day to delta, gamma, and vega. Expla...

Q: Use the spreadsheets on the author’s website to calculate the one-

Use the spreadsheets on the author’s website to calculate the one-day 99% VaR and ES, employing the basic methodology in Section 22.2, if the four-index portfolio considered in Section 22.2 is equally...

Q: Stock A, whose price is $30, has an expected

Stock A, whose price is $30, has an expected return of 11% and a volatility of 25%. Stock B, whose price is $40, has an expected return of 15% and a volatility of 30%. The processes driving the return...

Q: Describe three ways of handling instruments that are dependent on interest rates

Describe three ways of handling instruments that are dependent on interest rates when the model-building approach is used to calculate VaR. How would you handle these instruments when historical simul...