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...
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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