John Flag, the manager of a USD 150 million distressed bond portfolio, conducts stress tests on the portfolio. The portfolio’s annualized return is 12%, with an annualized return volatility of 25%. In the last two years, the portfolio encountered several days when the daily value change of the portfolio was more than 3 standard deviations. If the portfolio suffered a 4-sigma daily event, which of the following is the best estimate of the change in the value of this portfolio? Assume that there are 250 trading days in a year.
John Flag, the manager of a USD 150 million distressed bond portfolio, conducts stress tests on the portfolio. The portfolio’s annualized return is 12%, with an annualized return volatility of 25%. In the last two years, the portfolio encountered several days when the daily value change of the portfolio was more than 3 standard deviations. If the portfolio suffered a 4-sigma daily event, which of the following is the best estimate of the change in the value of this portfolio? Assume that there are 250 trading days in a year. A.USD 9.48 million; B.USD 23.70 million; C.USD 37.50 million; D.USD 150 million