Consider a $3-$year deep discount bond with a nominal value of $$10,000.$ The current $3-$year yield is $3\mathrm{.}26\%.$ Assume the mean daily yield change is $5$ basis points and yield changes are normally distributed with a daily volatility of $0\mathrm{.}09\%.$ Using the Risk Metricsframework, calculate the $95\%$ and $99\%$ bond VAR over a $10-$day horizon, as well as the $95\%$ bond VAR over a $20-$day horizon $($round all VAR figures to the nearest integer$).$

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To calculate the Value at Risk VAR using the Risk Metrics framework for the given deep discount bond ... View the full answer