Consider a two-asset portfolio invested with $10 in each asset. The mean returns of the two assets are $10 \%$ and $15 \%$ . The correlation of returns is 50%. The standard deviation of returns is 20% and 30%, respectively. What are the risk-contribution proportions of each asset to the 99%-VaR of this portfolio?
A) 33:67
B) 36:64
C) 48:52
D) 50:50

Question

Quizplus · Accepted Answer

The risk contribution of each asset to the portfolio's VaR is determined by the marginal VaR, which depends on the asset's weight, standard deviation, and correlation with the portfolio. Calculating these contributions shows that the proportions are approximately 36% for the first asset and 64% for the second asset.

Consider a Two-Asset Portfolio Invested with $10 in Each Asset 10%10 \%10%

Consider a Two-Asset Portfolio Invested with $10 in Each Asset $10 \%$