Question

A company has a long position in a two-year bond and a three-year bond as well as a short position in a five-year bond. Each bond has a principal of $100 and pays a 5% coupon annually. Calculate the company’s exposure to the one-year, two-year, three-year, four-year, and five-year rates. Use the data in Tables 8.7 and 8.8 to calculate a 20-day 95% VaR on the assumption that
rate changes are explained by (a) one factor, (b) two factors, and (c) three factors. Assume that the zero-coupon yield curve is flat at 5%.


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  • CreatedJuly 30, 2015
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