Homework Answers
Part (a)
For 10% VaR, find the value of the (30 observations x 10% + 1)th observations from worst to best. Hence we need the value of the 30 x 10% + 1 = 4th worst return which is -7%.
Hence, 10% Var = 7%
Meaning: We can say with 1 - 10% = 90% confidence that the daily loss of the portfolio will not exceed 7%
Part (b)
Expected shortfall = Average of worst (10% x 30 =) 3 observations = (16% + 14% + 9%) / 3 = 13%
Meaning: In 10% of the cases, the expected losses of the portfolio is 13%
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