BaseballRedhawks
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- May 18, 2013
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Anyone have the book handy?
Page 198, quesiton 9.
They give you a table with sample probability distribution of annual returns on a portoflio with market vlaue of $10 million.
Then they ask for 1% yearly VAR
and 5% yearly VAR.
I gues you add up the porbabilites to get .01 and .05 for each.
For .01, its the 2 probabilties that are both .005.
The first has a return on portoflio Less than 50%, probability .005
second one: return on portoflio -50% to -40%, probability .005.
THe answer says the porbability is 0.005 that the portoflio will lose at least 50% in a year. THe porbability is 0.005 that the portfolio will lose between 40% and 50% in a year. Cumulating these probabilities implies that the probability is 0.01 that the portfolio will lost at least 40% in a year.
My quesiton is how do you cumulate probabilities?
Part B is even more confusing. Anyone can help explain this?
THanks!
Page 198, quesiton 9.
They give you a table with sample probability distribution of annual returns on a portoflio with market vlaue of $10 million.
Then they ask for 1% yearly VAR
and 5% yearly VAR.
I gues you add up the porbabilites to get .01 and .05 for each.
For .01, its the 2 probabilties that are both .005.
The first has a return on portoflio Less than 50%, probability .005
second one: return on portoflio -50% to -40%, probability .005.
THe answer says the porbability is 0.005 that the portoflio will lose at least 50% in a year. THe porbability is 0.005 that the portfolio will lose between 40% and 50% in a year. Cumulating these probabilities implies that the probability is 0.01 that the portfolio will lost at least 40% in a year.
My quesiton is how do you cumulate probabilities?
Part B is even more confusing. Anyone can help explain this?
THanks!