Using the same assumptions as in Problem 26.12, compute the 10-day 95% VaR for a claim that pays $3m each year in years 7–10.
In Problem 26.12
Suppose the 7-year zero-coupon bond has a yield of 6% and yield volatility of 10% and the 10-year zero-coupon bond has a yield of 6.5% and yield volatility of 9.5%.
The correlation between the 7-year and 10-year yields is 0.96. What are 95% and 99% 10-day VaRs for an 8-year zero-coupon bond that pays $10m at maturity?