# Question

Calculate DVA for the bank in Example 20.2. Assume that the bank can default in the middle of each month and that the default probability is 0.001 per month for the two years. Assume that the recovery rate for the counterparty when the bank defaults is 40%.

## Answer to relevant Questions

An investment bank has been asked to underwrite an issue of 10 million shares by a company. It is trying to decide between a firm commitment where it buys the shares for $10 per share and a best efforts where it charges a ...Consider a European call option on a non-dividend-paying stock where the stock price is $52, the strike price $50, the risk-free rate is 5%, the volatility is 30%, and the time to maturity is one year. Answer the following ...What difference does it make to the worst-case scenario in Example 22.1 if (a) the options are American rather than European and (b) the options are barrier options that are knocked out if the asset price reaches $65? Use ...A trader wishes to unwind a position of 200,000 units in an asset over eight days. The dollar bid–offer spread, as a function of daily trading volume q, is a + b cq where a = 0.2, b = 0.15 and c = 0.1 and q is measured in ...Suppose daily losses (gains) from trading are independent and normally distributed with mean zero. Calculate in terms of the standard deviation of the daily losses (gains) (a) the basic Basel I regulatory capital requirement ...Post your question

0