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VAR EOC question - possible error
I am wondering whether the answer to question 23, p. 283, vol. 5 is correct.
Basically the question asks whether an increase in expected return will increase VAR and also whether an increase in correlation between assets in the portfolio will increase VAR.
The answer states that the increase in expected return will not increase VAR due to less losses and that an increase in correlation will increase VAR due to the higher standard deviation of the portfolio. Taken in isolation this sounds totally logical, doesn't it? Does to me.
However when i try to plug these into the formula VAR= (R-z*st dev)*V, all of this does not make any sense. Contrary to the answer, when you increase R, VAR will increase. Also when you increase the correlation between the assets in the portfolio the standard deviation will increase, which, as the formula implies, will actually decrease the VAR.
Any perspective on this?
Edited 1 time(s). Last edit at Tuesday, May 10, 2011 at 07:21PM by Common_Sense. |
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发表于 2011-7-11 19:16
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