Assignment 6: calculating VaR
1.
It is October 2011, and you are working in the risk management division of the publicly traded
company Pear Inc. Pears core business units are the production of computers, mobile phones,
and tablets. Nevertheless, Pear Inc
MS&E 242 Bond Portfolio Management Project
Cheng-Chieh Chao, Xiao Chen, Zeng Fan, Cheng Kang Wang
Part I
Step 1: Adjust the bond price with accrued interest.
The following formula was applied to calculate the accrued interest (AI) of each bond:
AI =
days
Bond Immunization
Today's Date
Days in Year
10/11/2012
365
Inputs
Bond Quotes
Maturity Date
2/15/2013
2/15/2013
8/15/2013
8/15/2013
2/15/2014
2/15/2014
8/15/2014
8/15/2014
2/15/2015
2/15/2015
8/15/2015
8/15/2015
2/15/2016
2/15/2016
8/15/2016
8/15/2016
2/1
ARTICLES
Credit risk management and financial stability
Credit risk management
and financial stability
LAURENT CLERC
Economic Analysis and Research Directorate
Monetary and Financial Policy Research Division
The International Banking and Finance Institute
Liquidity risk management
CHARLES GOODHART
Professor of Banking and Finance
London School of Economics
Liquidity and solvency are the heavenly twins of banking, frequently indistinguishable. An illiquid bank can
rapidly become insolvent, and an insolvent
Jagjit S. Chadha Elisa Newby
Midas, transmuting all, into paper:
The Bank of England and the
Banque de France during the
Revolutionary and Napoleonic Wars
Bank of Finland Research
Discussion Papers
20 2013
Midas, transmuting all, into paper: the Bank of
E
Hedge funds, credit risk transfer and nancial stability
ROGER T. COLE
GREG FELDBERG
DAVID LYNCH
Director
Assistant to the Director
Senior Supervisory Financial Analyst
Division of Banking Supervision and Regulation, Board of Governors of the Federal Reser
SEMINAR
INTERNAL AUDIT AND RISK MANAGEMENT IN A CENTRAL
BANK
PARIS, 3-6 NOVEMBER 2015
CONFERENCE AREA, ROOM 1
PROGRAM
SEMINAR
INTERNAL AUDIT AND RISK MANAGEMENT IN A CENTRAL BANK
TUESDAY 3 NOVEMBER
9.15 a.m
Meeting at the Banque de France (31, rue Croix-d
Dbats conomiques et financiers N14
Modelling and measuring business risk
and the resiliency of retail banks
Mohamed CHAFFAI* and Michel DIETSCH*
Universit de Sfax
* Universit de Strasbourg et ACPR Banque de France: michel.dietsch@acpr.banque-france.fr
1/3
Market liquidity and its incorporation
into risk management
ARNAUD BERVAS
Financial Stability Co-ordination Directorate
Financial Stability and Market Research Division
The excessively optimistic assessment of market liquidity, i.e. the belief that transa
FINANCIAL RISK MANAGEMENT IN A CENTRAL BANK
29 MARCH - 1er APRIL 2016
Objective
This seminar aims to introduce the main financial (credit and market) risks faced by central
banks.
Experts from Banque de France will present the risk framework associated wi
French banks performance in 2014
No. 46 May 2015
1
CONTENTS
1.
FINANCIAL PERFORMANCE OF FRENCH BANKING GROUPS IN 2014
5
1.1.
Earnings improved, excluding exceptional items
5
1.2.
Profits rise mostly on the continued decline in cost of risk in 2014
6
1.2.1
1
Mean-variance portfolio theory
This class: Asset portfolios
Markowitz model
Two-fund and one-fund theorems
Kay Giesecke
2
Asset portfolios
Portfolio return
Consider a portfolio composed of n assets with total value
Pn
x = i=1 xi , where xi is the va
1
Risk
This class: Probability refresher
Some empirical properties of asset returns
Kay Giesecke
2
We live in an uncertain world
We will relax the assumption of certain cash ows
We will consider a single period and assume that the cash ow at
the end o
1
Applied interest rate analysis
Topics
This class: Capital budgeting
Cash matching
Kay Giesecke
Finance
2
Capital budgeting
Capital budgeting is the allocation of a xed capital budget
among a number of investments or projects
Often arise in a rm wher
Assignment 4: Applied Interest Rate Analysis
1.
As an investment manager in a venture capital fund, you have to select a set of projects to invest
in. You have a USD 1 million to spend and the following projects to invest in (all numbers in
USD thousands)
Assignment 5: Risk
1.
Assume you roll a fair dice twice. Two rolls are independent and identically distributed, with
probability of rolling a particular number being 1/6. So, for instance, the probability of rolling 5
and then 2 is P(5,2) = P(5) P(2) = 1/
Assignment 2: Fixed-Income Securities
1.
Which of the following is true about a municipal bond?
radio button to select They may be issued by states or local governments; they may carry credit
rating and can be backed by revenues from some projects. as you
Assignment 3: The Term Structure of Interest Rates
1.
Consider two bonds on the market: one zero-coupon bond, maturing in exactly 1 year from today
and trading at 99% of its par value; another is a 2% coupon bond, maturing in exactly 2 years
from today, t
Assignment 8: CAPM
1.
Assume the expected rate of return on the market is 10%, the risk-free rate is 2%. Standard
deviation of the market is 24%. Compute the capital market line. Assume you are looking for
portfolio with expected return 15%. According to
Assignment 7: Mean-Variance Portfolio Theory
1.
Consider, as in Lecture 7.1, a portfolio of two risky assets, with expected returns r1,r2,
variances 21,22 and covariance 1,2. No other assets are available. You have to allocate $1
mln of investment in the
1
Basic Theory of Interest
Topics
This class: Principal and interest
Present and future value
Internal rate of return
Ranking dierent investments
Kay Giesecke
Basic Theory of Interest
Principal and interest
Time is money
Simple interest: If A is an a
1
Fixed-income securities
Topics
This class: Bonds
Valuation of annuity contracts: hedging and arbitrage
Yield-to-maturity of a bond
Duration and bond portfolio immunization
Kay Giesecke
Finance
2
Terminology
A nancial instrument represents the right
1
The term structure of interest rates
Topics
This class: Yield curve and spot rate curve
Forward rates
Running present value
Expectations dynamics
Duration and immunization
Kay Giesecke
Finance
2
Yield curve
A bond is specied by its face value F ,
1
The capital asset pricing model (CAPM)
This class: Market portfolio and capital market line
The security market line
CAPM pricing
Kay Giesecke
2
Market portfolio
Assumptions
Every investor is a mean-variance optimizer
Investors measure risk in term
Bond Immunization
Today's Date
Days in Year
10/11/2012
365
Inputs
Outputs
Bond Quotes
Maturity Date
2/15/2013
2/15/2013
8/15/2013
8/15/2013
2/15/2014
2/15/2014
8/15/2014
8/15/2014
2/15/2015
2/15/2015
8/15/2015
8/15/2015
2/15/2016
2/15/2016
8/15/2016
8/15/
1
Risk measures
This class: Value at risk (VaR)
Estimating VaR
Average value at risk (AVaR)
Kay Giesecke
2
Value at risk
How do we measure the risk of a position X ?
Volatility measures the dispersion of X around its mean
Both upside and downside are
Assignment 1: Basic Theory of Interest
1.
The effective rate for 4% compounded monthly is
radio button to select 4.04% as your response
4.04%
radio button to select 4.07% as your response
4.07%
radio button to select 3.99% as your response
3.99%
Correct A