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RSK4805 Assignment 4 (COMPLETE ANSWERS) 2024 - DUE September 2024 ; 100% TRUSTED Complete, trusted solutions and explanations. $2.50   Add to cart

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RSK4805 Assignment 4 (COMPLETE ANSWERS) 2024 - DUE September 2024 ; 100% TRUSTED Complete, trusted solutions and explanations.

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RSK4805 Assignment 4 (COMPLETE ANSWERS) 2024 - DUE September 2024 ; 100% TRUSTED Complete, trusted solutions and explanations.

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  • September 9, 2024
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, RSK4805 Assignment 4 (COMPLETE ANSWERS) 2024 -
DUE September 2024 ; 100% TRUSTED Complete, trusted
solutions and explanations.
Q1 Suppose that each of two investments has a 4% chance of a
loss of R15 million, a 1% chance of a loss of R1.5 million and a
95% chance of a profit of R1.5 million. They are independent of
each other. Calculate the expected shortfall (ES) when the
confidence level is 95%? The expected shortfall for one of the
investments is the expected loss conditional that the loss is in the
5% tail. Given that we are in the tail, there is a Answer %
chance than the loss is R1.5 million and an Answer % chance
that the loss is R15 million. The expected loss is equal to R
Answer million. Round your answer to two decimal places (e.g.,
10.15 million)


To calculate the Expected Shortfall (ES) for one of the
investments at a 95% confidence level, we follow these steps:
Step 1: Understanding the Loss Probabilities
• There is a 4% chance of a loss of R15 million.
• There is a 1% chance of a loss of R1.5 million.
• The remaining 95% chance results in a profit of R1.5
million.
We focus only on the 5% tail, where losses occur. In this tail:
• The probability of R15 million loss is 4% out of the total
5%, which is 45=80%\frac{4}{5} = 80\%54=80%.

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