Review for E2_ans_Fall11_detailed solutions

# Review for E2_ans_Fall11_detailed solutions - FINANCIAL...

This preview shows pages 1–2. Sign up to view the full content.

FINANCIAL INSTITUTIONS MANAGEMENT REVIEW FOR EXAM 2. Problem 1. You have to estimate the aggregated 5 - day VAR for the BOND, FOREX and Equity portfolios. The bond portfolio consists of 15-year coupon bonds with a face value of \$5 million, coupon rate 7% and duration 9.5 years. The bonds currently are yielding 9% in the over-the-counter market. The standard deviation of the bonds is 15bp. You also have 100 million positions in Japanese Yen. The current spot exchange rate is 113Yen/1\$ and the estimated standard deviation is 55 bp. Your equity portfolio consists of 50 000 common stock with the market price \$105 per share and 45 000 preferred stocks with \$86 per share. The beta of the portfolio is 1.23. Market standard deviation is 2.8%. Use adverse rate changes in the 95 th percentile and the correlation coefficient between bond and Forex portfolios = 0.2, correlation between forex and equity portfolios = 0.45 and correlation between equity and bond portfolios = -0.15. Solution: Bond portfolio: 5 DAY VAR = 202281.63 Forex portfolio: 5 day VAR = 17 957.803 Equity portfolio 5 day VAR = 1 636 435.5 Portfolio VAR = Calculate by yourself Problem 2 A Bank has a trading position in British Pounds. At the close of business on October 28, the bank had 20 000 000 BP. The exchange rates for the most recent 3 days are given below:

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

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### Page1 / 3

Review for E2_ans_Fall11_detailed solutions - FINANCIAL...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online