Question

9. If returns are not independent and follow an autoregressive process such as $R_t = \rho R_{t-1} + u_t$, write down the expression for the variance of two day returns and show that the VaR is given by $VAR_2 = \alpha(\sigma \sqrt{2(1+\rho)})$ $W = [VAR_1\sqrt{2}]/\sqrt{(1+\rho)}$

          9. If returns are not independent and follow an autoregressive process such as $R_t = \rho R_{t-1} + u_t$, write
down the expression for the variance of two day returns and show that the VaR is given by
$VAR_2 = \alpha(\sigma \sqrt{2(1+\rho)})$
$W = [VAR_1\sqrt{2}]/\sqrt{(1+\rho)}$

9. If returns are not independent and follow an autoregressive process such as Rt = ρ Rt-1 + ut, write
down the expression for the variance of two day returns and show that the VaR is given by
VAR2 = α(σ√(2(1+ρ)))
W = [VAR1√(2)]/√((1+ρ))

Added by Justin K.

Horngren’s Cost Accounting

Srikant M. Datar, Madhav V. Rajan 16th Edition

Instant Answer

Solved by Expert Victor Salazar

09/03/2023

Step 1

Step 1: The expression for the variance of two-day returns can be calculated as follows: VAR(2) = Var(R_(t) + R_(t-1)) VAR(2) = Var(R_(t)) + Var(R_(t-1)) + 2Cov(R_(t), R_(t-1)) Since returns are not independent and follow an autoregressive process, the covariance Show more…

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If returns are not independent and follow an autoregressive process such as R_(t)= ho R_(t-1)+u_(t), write down the expression for the variance of two day returns and show that the VaR is given by VAR_(2)=alpha (sigma sqrt(2(1+ ho )))W=[VAR_(1)sqrt(2)]sqrt((1+ ho )) 9. If returns are not independent and follow an autoregressive process such as Rt=pRt-1+ ut, write down the expression for the variance of two day returns and show that the VaR is given by VAR2=(2(1+p)W=[VAR12]V(1+p)