# Question

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?

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?

## Answer to relevant Questions

Suppose the businesses in the previous problem use futures contracts to hedge their temperature-related risk. Who do you think might accept the opposite risk? Assuming a $10m investment in one stock, compute the 95% and 99% VaR for stocks A and B over 1-day, 10-day, and 20-day horizons. Repeat the previous problem, only use Monte Carlo simulation. Using Monte Carlo simulation, reproduce Tables 27.10 and 27.11. Produce a similar table assuming a default correlation of 25%. Suppose the firm has a single outstanding debt issue with a promised maturity payment of $120 in 5 years. Assume that bankruptcy is triggered by assets (which are observable) falling below $40 in value at any time over the ...Post your question

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