Exercises

1. What is the simplest definition of a VaR? What are the differences between a VaR and variance and standard deviation and beta?

2. Assume that we have a plan to form a two-stock portfolio. The confidence level is 99% and number of period is 10 days. If the VaR for the first stock is x while the VaR for the second stock is y, is the portfolio VaR the weighted individual stock's VaR, that is, VaR(portfolio) = wA*x + wB*y, where WA is the weight for stock A while wB is the weight for stock B? Explain.

3. Do IBM's returns follow a normal distribution? Are their skewness and kurtosis zero and 3 (excess kurtosis is zero)?

4. What are the values of skewness and kurtosis for a normal distribution? Generate n random numbers by using rnorm() to support your conclusion.

5. Write a Python function to estimate mean, standard deviation, skewness, and kurtosis of a given ticker; for example, moments4("ticker",begdate,enddate).

6. Assuming that we own 134 shares of Microsoft; what is the total value today? What is...