elasticity为啥为0.2？

问题如下：

Major Investments is an asset management firm with USD 25 billion under management. It owns 20% of the stock of a company. Major Investments’ risk manager is concerned that, in the event the entire position needs to be sold, its size would affect the market price. His estimate of the price elasticity of demand is -0.5. What is the increase in Major Investments’ Value-at-Risk estimate for this position if a liquidity adjustment is made?

选项：

A.

4%

B.

10%

C.

15%

D.

20%

解释：

What is needed is a liquidity adjustment that reflects the response of the market to a possible trade. The formula to use is the ratio of LVaR to VaR

The ratio of LVaR to VaR depends on the elasticity of demand E and the size of the trade, relative to the size of the market (△N/N). We are given: △N/N =-0.5. Thus △P/P = elasticity × △N/N = -0.1. Therefore LVaR/VaR = 1 –△P/P = 1 + 0.1 = 1.1

The liquidity adjustment increases the VaR by 10%.