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RSK4805 Assignment 4 (QUESTIONS & ANSWERS) 2024

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RSK4805 Assignment 4 Full Solutions 2024 ;100 % TRUSTED workings, Expert Solved, Explanations and Solutions. For assistance call or W.h.a.t.s.a.p.p us on ...(.+.2.5.4.7.7.9.5.4.0.1.3.2)........... Ass 4 Q1 Suppose that each of two investments has a 4% chance of a loss of R15 million, a 1% chance...

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  • September 10, 2024
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RSK4805
ASSIGNMENT 4 2024
UNIQUE NO.
DUE DATE: SEPTEMBER 2024

, RSK4805

Assignment 4 2024

Unique Number:

Due Date: September 2024

Market Risk Management

Step 1: Identifying the losses in the 5% tail

 There is a 4% chance of a loss of R15 million.
 There is a 1% chance of a loss of R1.5 million.

These losses fall in the 5% tail of the distribution.

Step 2: Conditional probabilities

Given that we are in the 5% tail, the probability that the loss is R1.5 million and R15
million must be recalculated based on the conditional probability of being in the tail.

 The conditional probability for a loss of R15 million (which occurs 4% of the time)
in the 5% tail is:

{4}/{5} = 0.8 (or 80%)}

 The conditional probability for a loss of R1.5 million (which occurs 1% of the time)
in the 5% tail is:

{1}/{5} = 0.2 (or 20%)}

Step 3: Calculating the expected loss in the tail

The expected loss in the 5% tail is calculated as a weighted average of the two possible
losses:

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