Mini Case 1.2.
Consider a value process $W_t$ that follows a Random Walk with drift, i.e., $\frac{\Delta W}{W} = \mu H + \sigma \sqrt{H}Z$, $Z \sim N(0, 1)$, where $\mu = 5\%$ p.a., $\sigma = 15\%$ p.a., and $W_t = 150$.
• What is the expected return and volatility for a time period of 8 years?
• Consider a realization of Z equal to -1.6449. What is the return of W in 8 years?
• What is the 8 year 0.1% VaR?