Calculate the combined lvar to var ratio incorporating both


The observed bid and ask of stock XYZ are 15.57 and 15.71, respectively. XYZ has an estimated annualized return volatility of 25%. Assume σspread=0.005 and 250 trading days in one year. a. Estimate the 1-day, 95% VaR of a 5,000 share position in stock XYZ. b. Estimate the 1-day 95% LVaR of the position, using the constant spread approach. c. Estimate the LVaR to VaR ratio using the exogenous spread approach. d. Suppose the position represents 10% of the size of the market and price elasticity of demand for stock XYZ is -0.6. Calculate the LVaR to VaR ratio using the endogenous price approach. e. Calculate the combined LVaR to VaR ratio incorporating both exogenous and endogenous effects.

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Financial Management: Calculate the combined lvar to var ratio incorporating both
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