The AT&T pension fund has 68%, or about $13 billion, invested in equities. Assume a normal distribution and volatility of 15% per annum. The fund measures absolute risk with a 95%, one-year VaR, which gives $3.2 billion. The pension plan wants to allocate this risk to two equity managers, each with the same VaR budget. Given that the correlation between managers is 0.5, the VaR budget for each should be
　　A. $3.2 billion
　　B. $2.4 billion
　　C. $1.9 billion
　　D. $1.6 billion
　　Answer: C
　　Call x the risk budget allocation to each manager. This should be such that . Solving for , we find x = $1.85billion. Answer A) is incorrect because it refers to the total VaR. Answer B) is incorrect because it assumes a correlation of zero. Answer D) is incorrect because it simply divides the $3.2 billion VaR by 2, which ignores diversification effects.
　　高顿网校为考生准备了史上最全的FRM考试备考指南，轻松学习，简单、高效，让考试So Easy！了解详情
        FRM考试在线高清视频指导