Suppose that daily gains losses are normally distributed


Suppose that daily gains (losses) are normally distributed with standard deviation of $5 million. (a) Estimate the minimum regulatory capital the bank is required to hold (assume a multiplicative factor of 4.0). (b) Estimate the economic capital using a one-year time horizon and a 99.9% confidence limit, assuming that there is a correlation of 0.05 between gains (losses) on successive days.

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Financial Management: Suppose that daily gains losses are normally distributed
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