Sumitomo Bank's risk manager has estimated that the DEARs of two of its major assets in its trading portfolio, foreign exchange and bonds, are -$150,000 and -$250,000, respectively. What is the total DEAR of Sumitomo's trading portfolio if the correlation among assets is assumed to be 0.80?
A)-$100,000.
B)-$291,548.
C)-$350,000.
D)-$380,789.
E)-$400,000.

Question

Quizplus · Accepted Answer

The total DEAR is calculated using the formula: √((DEAR1)^2 + (DEAR2)^2 + 2 * correlation * DEAR1 * DEAR2). Plugging in the values: √((-150,000)^2 + (-250,000)^2 + 2 * 0.80 * (-150,000) * (-250,000)) = -$380,789.

Sumitomo Bank's Risk Manager Has Estimated That the DEARs of Two