ADMS4504-Final-Sample1-Sol

ADMS4504-Final-Sampl - AP/ADMS4504A Final exam solutions AP/ADMS4504A Fixed Income Securities and Risk Management Final Exam Solutions Fall 2009 32

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
AP/ADMS4504A Final exam solutions Fall 2009 AP/ADMS4504A Fixed Income Securities and Risk Management Final Exam Solutions Fall 2009 32 Numerical Questions 1. (Q. 4 in B) Use the following daily yield observations to compute a daily standard deviation of yields. The daily yield changes are assumed to be continuously compounded. Day Yield (%) 0 6.4866 1 6.3980 2 6.5682 3 6.4796 4 6.6728 5 6.6829 6 6.7012 A) 1.7124% B) 1.8758% C) 1.9462% D) 2.1203% E) 2.3985% Answer B %. 8758 . 1 5186 . 3 , 5186 . 3 ) 1 6 ( ) 5425 . 0 2735 . 0 ( ) 5425 . 0 1512 . 0 ( ) 1 6 ( ) 5425 . 0 9381 . 2 ( ) 5425 . 0 3581 . 1 ( ) 5425 . 0 6254 . 2 ( ) 5425 . 0 3753 . 1 ( , 5425 . 0 X . 2735 . 0 )] % 6829 . 6 % 7012 . 6 [ln( 100 X , 1512 . 0 )] % 6728 . 6 % 6829 . 6 [ln( 100 X , 9381 . 2 )] % 4796 . 6 % 6728 . 6 [ln( 100 X , 3581 . 1 )] % 5682 . 6 % 4796 . 6 [ln( 100 X , 6254 . 2 )] % 3980 . 6 % 5682 . 6 [ln( 100 X , 3753 . 1 )] % 4866 . 6 % 3980 . 6 [ln( 100 X 2 2 2 2 2 2 6 5 4 3 2 1 = = = + + + + + = = = = = = = = = = = = = = deviation standard variance 1
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
AP/ADMS4504A Final exam solutions Fall 2009 2. (Q. 5 in B) Assume normally distributed yield changes. The current level of yield is 4%. With a probability of 95%, the range for the future yields has been determined to be [1.8%; 6.2%]. It follows that the annual standard deviation of yields is __________ and the corresponding daily variance of yields is __________ percentages squared, assuming there are 365 calendar days in a year. A) 27.5%; 2.07 B) 27.5%; 0.207 C) 27.5%; 0.000207 D) 55%; 0.000829 E) 55%; 8.29 Answer A A probability of 95% corresponds to a confidence interval of +/- 2 standard deviations from the present yield. So the annual standard deviation of yield changes = 1.1% or 110 basis points (bps). Given a current level of yield of 4%, the annual standard deviation of yields = 1.1% / 4% = 27.5%. Assume there are 365 calendar days in a year, the corresponding daily standard deviation of yields = 1.4394%, which is equivalent to a daily variance of yields of 0.000207, or 2.07 percentages squared. 3. (Q. 6 in B) Use the following daily yield observations to construct a 5-day moving average equal weight volatility forecast for Day 5, assuming that the expected value of the daily change in yield is zero. The daily yield changes are assumed to be continuously compounded. Here, volatility refers to standard deviation . Day Yield (%) 0 4.380 1 4.393 2 4.430 3 4.428 4 4.522 5 4.648 A) 1.5209% B) 1.6120% C) 1.7860% D) 1.8870% E) 1.9799% Answer C 2
Background image of page 2
AP/ADMS4504A Final exam solutions Fall 2009 The daily yield percentage changes (i.e., X t ) are 0.296364, 0.838722, -0.045157, 2.100636, and 2.748265 on Days 1, 2, 3, 4, and 5, respectively. The moving- average daily variance on Day 5 is calculated as: squared, s percentage 189739 . 3 ) 1 5 ( 748265 . 2 100636 . 2 ) 045157 . 0 ( 838722 . 0 296364 . 0 1
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 12/17/2010 for the course ATKINSON adms 4504 taught by Professor Nabil during the Fall '10 term at York University.

Page1 / 25

ADMS4504-Final-Sampl - AP/ADMS4504A Final exam solutions AP/ADMS4504A Fixed Income Securities and Risk Management Final Exam Solutions Fall 2009 32

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online