# Question: Suppose that you know the gamma of the portfolio in

Suppose that you know the gamma of the portfolio in Problem 15.17 is –2.6. Derive a quadratic relationship between the change in the portfolio value and the percentage change in the underlying asset price in one day.

(a) Calculate the first three moments of the change in the portfolio value.

(b) Using the first two moments and assuming that the change in the portfolio is normally distributed, calculate the one-day 95% VaR for the portfolio.

(c) Use the third moment and the Cornish–Fisher expansion to revise your answer to (b).

(a) Calculate the first three moments of the change in the portfolio value.

(b) Using the first two moments and assuming that the change in the portfolio is normally distributed, calculate the one-day 95% VaR for the portfolio.

(c) Use the third moment and the Cornish–Fisher expansion to revise your answer to (b).

## Answer to relevant Questions

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 ...Why is there an add-on amount in Basel I for derivatives transactions? “Basel I could be improved if the add-on amount for a derivatives transaction depended on the value of the transaction.” How would you argue this ...A company enters into a short futures contract to sell 5,000 bushels of wheat for 250 cents per bushel. The initial margin is $3,000 and the maintenance margin is $2,000. What price change would lead to a margin call? Under ...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 ...Consider the following two events: (a) a bank loses $1 billion from an unexpected lawsuit relating to its transactions with a counterparty and (b) an insurance company loses $1 billion because of an unexpected hurricane in ...Post your question