Question: Using Monte Carlo simulation evaluate and interpret the value at risk for a bond for the ten worst scenarios over the next 3 days using

  1. Using Monte Carlo simulation evaluate and interpret the value at risk for a bond for the ten worst scenarios over the next 3 days using the following information: the present value of the one-year Eurobond is 650 thousand Euro. The current AUD/EURO exchange rate is 0.55. Historical daily volatilities of the $/Euro exchange rate and the bond price are 0.005 and 0.003, respectively. The historic correlation is 0.61. Use 1000 random trials.

2. A manger of FI has a portfolio of different assets.

  1. a. She computed the individual asset DEARs and would like to sum them up to compute the portfolio DEAR. Can she compute the portfolio DEAR in this way? Explain why.

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