Exercise Solution 3.11

By [3.22],

[s1]

Accordingly, we should first calculate μ1 and μ2. This will enable us to calculate σ1 and σ2. Then we can calculate ρ1,2. From [3.25], we determine the marginal PFs:

[s2]

and

[s3]

From these and definitions [3.3] and [3.7], we calculate

[s4]

[s5]

[s6]

[s7]

We calculate the numerator of [s1] as

[s8]

[s9]

We obtain

[s10]

 

Welcome!

Enter your address for insights that will transform your risk management.

Click the link in the email I just sent you to confirm your address and start your subscription.

Defining Risk

Enter your email address to receive your copy and subscribe to Glyn's Risk Management Newsletter.

Click the link in the email I just sent you to download your paper and start your subscription.