Consider the Following Discrete Probability Distributions of Payoffs for 3

question 60

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) : $$\begin{array} { | l | l | l | } \hline \text { SECURITY } & \text { PROBABILITY } & \text { PAYOFF } \\\hline \text { Alpha } & 0.50 & 355 \\\hline & 0.49 & 150 \\\hline & 0.01 & - 300 \\\hline\end{array}$$ $$\begin{array} { | l | l | l | } \hline \text { SECURITY } & \text { PROBABILITY } & \text { PAYOFF } \\\hline \text { Beta } & 0.50 & 400 \\\hline & 0.49 & 150 \\\hline & 0.0025 & - 300 \\\hline & 0.0075 & - 3,300 \\\hline\end{array}$$ $$\begin{array} { | l | l | l | } \hline \text { SECURITY } & \text { PROBABILITY } & \text { PAYOFF } \\\hline \text { Gamma } & 0.49 & 400 \\\hline & 0.49 & 150 \\\hline & 0.01 & - 150 \\\hline & 0.01 & - 2,000 \\\hline\end{array}$$
-What is the expected payoff, the 99% value at risk (VAR) and the expected shortfall (ES) of security Gamma (in millions) ?

• A)+$248; -$2,000; -$2000
• B)-$248; -$20; -$2,000
• C)-$2.150; -$2,150; -$2,150
• D)+$248; -$21.50; -$20.00
• E)±$0.00; -248; -$2,150

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Definitions:

Breakdown Cost

The costs associated with analyzing and fixing a problem within a system or process.

Series Connection

An electrical circuit configuration where components are connected end-to-end in a single path for current to flow.

Carrier Pigeons

Birds historically used to transport messages across long distances before the advent of electronic communication.

Probability Of Arriving

Refers to the chance or likelihood that something will reach a particular destination within a given period.