1) Has anyone used CTE 75 as their chosen risk metric in Task 2? I used CTE 90 previously, and set the price such that CTE 90 > 0%, but my feedback states that this produces a price that is much too conservative. So I am considering setting CTE 75 > 0%, but I haven't seen a lot of discussion around the 75th percentile. I am considering using this in conjunction with the probability of loss being less than 10%.
2) I've also been reading in some of the threads that it might not even be necessary to give the risk metric a limit? If limits aren't chosen, would one just look at the chosen risk metrics at a few different prices, analyze the chosen metrics and then determine whether or not the results are acceptable based on management's requirements (1. PVP/R >10%, 2. Capital preservation)?
3) The assignment specifically asks for a "range of prices." To me, this means a minimum and maximum price, with the ideal price somwhere in the middle. However, feedback alludes to the fact that there really is no maximum price since the higher the price the better it is for BBA. So what do they mean by range of prices?
4) Lastly, I said that VaR is preferable to CTE because CTE captures the tail of the distribution (and VaR does not), and that is is importante to consider potential large losses because of BBA's capital preservation strategy. Apparently there are additional reasons why CTE is better than VaR? I know that CTE is coherent and VaR is not, but I'm not sure if that's even applicable since we aren't look at a portfolio of investments. Any ideas?
Please help! I am stuck :(
2) I've also been reading in some of the threads that it might not even be necessary to give the risk metric a limit? If limits aren't chosen, would one just look at the chosen risk metrics at a few different prices, analyze the chosen metrics and then determine whether or not the results are acceptable based on management's requirements (1. PVP/R >10%, 2. Capital preservation)?
3) The assignment specifically asks for a "range of prices." To me, this means a minimum and maximum price, with the ideal price somwhere in the middle. However, feedback alludes to the fact that there really is no maximum price since the higher the price the better it is for BBA. So what do they mean by range of prices?
4) Lastly, I said that VaR is preferable to CTE because CTE captures the tail of the distribution (and VaR does not), and that is is importante to consider potential large losses because of BBA's capital preservation strategy. Apparently there are additional reasons why CTE is better than VaR? I know that CTE is coherent and VaR is not, but I'm not sure if that's even applicable since we aren't look at a portfolio of investments. Any ideas?
Please help! I am stuck :(
BBA - Task 2
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