aianjie

 

AIM 4: Derive, mathematically, the unexpected loss on an asset.

1、The derivation of unexpected loss followed from which basic statistical identity?

VH = horizon value; V0 = current asset value.

A) VAR(V0) = E(V0)2 ? E(V20).

B) VAR(VH) = E(VH)2 ? E(V2H).

C) VAR(VH) = E(V2H) ? E(VH)2 + COV(V0, VH).

D) VAR(VH) = E(V2H) ? E(VH)2.

aianjie

 

The correct answer is D

Current asset value is not relevant to determining the distribution on the horizon date. Choice A has the squared terms in the wrong place. COV is not used in the derivation.

pizi

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