Assignment:
Roy Thomson, a global investment risk manager of FBN Bank, is assessing markets A and B using a two factor model. In order to determine the covariance between markets A and B, Thomson developed the following factor covariance matrix for global assets:
Factor Covariance Matrix for Global Assets
|
Global Equity Factor
|
Global Bond Factor
|
|
Global Equity Factor
|
0.3543
|
-0.0132
|
|
Global Bond Factor
|
-0.0132
|
0.0089
|
Suppose the factor sensitivities to the global equity factor are 0.75 for market A and 0.45 for market B, and the factor sensitivities to the global bond factors are 0.20 for market A and 0.65 for market B. The covariance between market A and market B is closest to.