Suppose That You Calculate VaR from Duration

question 7

Essay

Suppose that you calculate VaR from Duration. In your many results you ?nd that:
i. using historical data (of whatever length) or a normal distribution does not a?ect the result; 11
ii. you ?nd that kurtosis between historical data and the normal distri- bution is almost identical;
iii. You ?nd the expected change in the portfolio ?P = 0, with very small standard errors. Given the above, can you say that this Duration based VaR is an appro- priate approach to measure risk?

---

Definitions:

Monopoly Firms

Companies that are the sole provider of a product or service in a market, leading to a lack of competition.

Marginal Cost

The expense associated with manufacturing an extra unit of a product or service.

Monopolistic Competition

refers to a market structure where many firms sell products that are similar but not identical, each having some control over its price.

Product Differentiation

The process of distinguishing a product or service from others, to make it more attractive to a particular target market.