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  3. Intro to Computational Finance with R

Exercise

Determine the value-at-risk of simple monthly returns

Consider again the Microsoft stock. Assume that the simple monthly return \(R\) is normally distributed with a mean \(0.04\) and a variance \((0.09)^{2}\). The initial wealth to be invested over the month is $100,000.

Determine the 1% and the 5% value-at-risk (VaR) over the month on the investment. That is, determine the loss in investment value that may occur over the next month with a 1% probability and with a 5% probability.

Instructions

100 XP
  • Assign to mu_R the mean of \(R\).
  • Assign to sigma_R the standard deviation of \(R\).
  • Assign to W0 the initial wealth.
  • Compute the 1% value-at-risk and print the result to the console.
  • Compute the 5% value-at-risk and print the result to the console.