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 viewpoint?
Answer to relevant QuestionsEstimate the capital required under Basel I for a bank that has the following transactions with another bank. Assume no netting. (a) A two-year forward contract on a foreign currency, currently worth $2 million, to buy ...Suppose that an investor owns the $10 million portfolio in Table 13.1 on September 30, 2014. The values of the four indices on that day were 17,042.90, 6622.7, 4,416.24, 16,173.52. The exchange rates on that day were:1.6211 ...Extend Example 20.3 to calculate CVA when default can happen in the middle of each month. Assume that the default probability during the first year is 0.001667 per month and the default probability during the second year is ...What difference does it make to the worst-case scenario in Example 22.1 if (a) the options are American rather than European and (b) the options are barrier options that are knocked out if the asset price reaches $65? Use ...Using Table 25.1, calculate the volatility a trader would use for an 11-month option with a strike price of 0.98.
Post your question