VaR

kapilanjan.npti
Posts: 2
Joined: Fri Oct 26, 2012 8:59 pm

VaR

Postby kapilanjan.npti » Sun Sep 08, 2013 7:50 am

In a two-position portfolio consisting of positions X and Y, it is found that the marginal VAR of X is greater than that of Y. Using this information, which of the following is most likely to be TRUE? Increasing the allocation to:
a. X and/or reducing the allocation to Y will move the portfolio toward the optimal portfolio
b. Y and/or reducing the allocation to X will lower the VAR of the portfolio
c. Y and/or reducing the allocation to X will move the portfolio toward the optimal portfolio
d. X and/or reducing the allocation to Y will lower the VAR of the portfolio

pradeeppdy
Finance Junkie
Posts: 258
Joined: Thu Sep 20, 2012 3:42 pm

VaR

Postby pradeeppdy » Tue Sep 10, 2013 8:16 am

Answer is B, Because in a two position portfolio we need to minimise the risk of a portfolio and it happens only if the marginal VARs are equal.
In this situation increasing the allocation of y and reducing the allocation of x will lower the VAR of the portfolio and will tend to minimise the risk of portfolio.

I hope it is clear to you.


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