RiskMetrics The trading book portfolio of financial institution C consists of A coupon bond investment with...

 

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RiskMetrics The trading book portfolio of financial institution C consists of A coupon bond investment with 5 years to maturity, face value $1 million, coupon rate 3.5%, and coupon is paid once per year; 0.5 million shares of stock X; a foreign cash deposit of 1.5 million. The current market yield for the coupon bond is 2.5%. The institution chooses the bond yield, the USD price of stock X per share and exchange rate (USD/GBP) as three risk factors. It is estimated that the changes in these three factors follow a multivariate normal distribution; the mean for all factors are 0, and standard deviation for these three factors are 0.0087, $0.15 and $0.0092 per , respectively. Also, these three factors has the following correlation matrix 1 0.5 -0.35 0.5 1 -0.45 -0.35 -0.45 1 (a) What is the market value and duration of the coupon bond investment in this portfolio? (b) What is the 99% DEAR of this portfolio? RiskMetrics The trading book portfolio of financial institution C consists of A coupon bond investment with 5 years to maturity, face value $1 million, coupon rate 3.5%, and coupon is paid once per year; 0.5 million shares of stock X; a foreign cash deposit of 1.5 million. The current market yield for the coupon bond is 2.5%. The institution chooses the bond yield, the USD price of stock X per share and exchange rate (USD/GBP) as three risk factors. It is estimated that the changes in these three factors follow a multivariate normal distribution; the mean for all factors are 0, and standard deviation for these three factors are 0.0087, $0.15 and $0.0092 per , respectively. Also, these three factors has the following correlation matrix 1 0.5 -0.35 0.5 1 -0.45 -0.35 -0.45 1 (a) What is the market value and duration of the coupon bond investment in this portfolio? (b) What is the 99% DEAR of this portfolio?