A bank calculates its VAR at 30 million. If the variance of some of its assets...
A bank calculates its VAR at 30 million. If the variance of some of its assets increases while all others remain the same the VAR will,
|
Increase. |
|
|
Decrease. |
A bank calculates its VAR at 30 million. If it would like to reduce its VAR it can,
|
a. |
Seek out investments that have a positive covariance. |
|
b. |
Seek out investments that have a negative covariance. |
Homework Answers
1). If variance of some assets increases, then volatility is increasing, so VAR will increase.
2). Negative co-variance would mean that asset returns move in opposite directions, thus, reducing risk. So, to reduce VaR, seek out investments with negative co-variance.
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A bank calculates its VAR at 30 million. If the variance of some
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