Suppose that you hold a portfolio with the following exposures to the interest rates movements (change...

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Suppose that you hold a portfolio with the following exposures to the interest rates movements (change in portfolio value in $ millions, for a 1 basis point (bp) rate move): 1-year rate: +10, • 2-year rate: +4, 3-year rate: -8, • 4-year rate: -7, 5-year rate: +2. ● ● ● You conduct a Principal Component analysis (PCA) and find the following: The first factor (Principal Component, PC 1) has the following loadings for the Treasury rates: 1-year rate: 0.32, 2-year rate: 0.35, 3-year rate: 0.36, 4-year rate: 0.35, 5-year rate: 0.36. . The second factor (Principal Component, PC 2) has the following loadings for the Treasury rates: 1-year rate: -0.32, 2-year rate: -0.10, 3-year rate: 0.02, 4-year rate: 0.14, 5-year rate: 0.17. The Standard Deviations of the factors are 17.49 for PC1 and 6.05 for PC2. Only two factors (PC1 and PC2) are sufficient in explaining the variations in returns. Using the information above, calculate the 1-day 99% Value-at-Risk (VaR) of your portfolio. Suppose that you hold a portfolio with the following exposures to the interest rates movements (change in portfolio value in $ millions, for a 1 basis point (bp) rate move): 1-year rate: +10, • 2-year rate: +4, 3-year rate: -8, • 4-year rate: -7, 5-year rate: +2. ● ● ● You conduct a Principal Component analysis (PCA) and find the following: The first factor (Principal Component, PC 1) has the following loadings for the Treasury rates: 1-year rate: 0.32, 2-year rate: 0.35, 3-year rate: 0.36, 4-year rate: 0.35, 5-year rate: 0.36. . The second factor (Principal Component, PC 2) has the following loadings for the Treasury rates: 1-year rate: -0.32, 2-year rate: -0.10, 3-year rate: 0.02, 4-year rate: 0.14, 5-year rate: 0.17. The Standard Deviations of the factors are 17.49 for PC1 and 6.05 for PC2. Only two factors (PC1 and PC2) are sufficient in explaining the variations in returns. Using the information above, calculate the 1-day 99% Value-at-Risk (VaR) of your portfolio.

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To calculate the VaR of the portfolio using the information provided we need to follow these steps C... View the full answer