Question

In: Statistics and Probability

1.      If your firm calculates its Economic Capital due to Market Risk, Credit Risk, Operational Risk...

1.      If your firm calculates its Economic Capital due to Market Risk, Credit Risk, Operational Risk for the next 1 year as follows . . .    (10 points)

                  Market Risk           $323,000

                  Credit Risk             $515,000

                  Operational Risk    $ 83,270

         . . . what will be the firm's total Economic Capital . . .

         a.      If the correlations among the three types of capital are believed to be :

                  Market-Credit        0.4

                  Market-Operation 0.1

                  Credit-Operation   0.2

b.      If the correlations are all equal to 1.0:

d.      If you don't know the correlations, which measure is probably too high? which is                               probably too low? what might be a reasonable level to use?

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Expert Solution

orchestra answered 1 year ago
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