Sumitomo Bank's risk manager has estimated that the VaRs 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 VaR of Sumitomo's trading portfolio if the correlation among assets is assumed to be 0.80?

Question

Quizplus · Accepted Answer

The total VaR of Sumitomo's trading portfolio is calculated as the square root of the sum of the squared VaRs of the individual assets, multiplied by the correlation among assets. In this case, the total VaR is:Total VaR = sqrt((-$150,000)^2 + (-$250,000)^2 + 2 * (-$150,000) * (-$250,000) * 0.80) = -$380,789

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