Problem
XYZ fund has $100 million under management. Its assets are divided between a U.S. equity fund and a European equity fund. Sixty percent (60%) of the assets are invested in the U.S. fund and 40% in the European fund. The characteristics of the monthly returns of the two funds are given in the table below. Using the risk metrics method, what is the monthly value at risk at 1% level?
|
|
Distribution
|
Expected Return
|
Stdev of Return
|
Correlation Coeff
|
|
US Fund Returns
|
Normal
|
0.4%
|
4.0%
|
|
|
European Fund Returns
|
Normal
|
0.6%
|
6.0%
|
0.6
|