Consider the Following Discrete Probability Distributions of Payoffs for 3

question 86

Multiple Choice

Consider the following discrete probability distributions of payoffs for 3 securities that are held in a DI's trading portfolio (payoff amounts shown are in $millions) :

$\begin{array} { | l r r | } \text { SECURITY } & \text { PROBABILITY } & \text { PAYOFF } \\\text { Alpha } & 0.50 & 355 \\& 0.49 & 150 \\& 0.01 & - 300\end{array}$
$\begin{array} { lcc } \text { SECURITY } & \text { PROBABILITY } & \text { PAYOFF } \\\text {Beta } & 0.50 & 1500 \\& 0.49 & - 300 \\& 0.0025 & - 3,300\end{array}$
$\begin{array} { lcc } \text { SECURITY } & \text { PROBABILITY } & \text { PAYOFF } \\\text {Gamma } & 0.49 &400 \\&0.49&150 \\&0.01 &-150 \\&0.01&-2,000\end{array}$
What is the expected shortfall (ES) of securities Alpha and Beta at the 99 percent confidence level,respectively (in millions) ?

• A)-$300 and -$3,300
• B)-$3 and -$24.75
• C)-$3 and -$25.50
• D)-$300 and -$300

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Definitions:

Ridge Push

A tectonic process associated with the movement of the Earth's lithosphere, where an elevated ridge pushes an adjacent plate away due to gravitational forces.

Topographically High Ridge

An elongated area of high ground, usually sharper than a hill, often formed by tectonic processes or erosion.

Earth's Magnetic Field

The geomagnetic field that extends from the Earth's interior into space, where it meets the solar wind, a stream of charged particles emanating from the sun.

Outer Core

The liquid layer of the Earth's core that lies beneath the mantle and surrounds the inner core, composed mostly of iron and nickel.