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Risk Management

Risk Management. Exercises. Exercise. Value at Risk calculations. Problem. Consider a stock S valued at $1 today, which after one period can be worth S T : $2 or $0.50. Consider also a convertible bond B, which after one period will be worth max(1, S T ).

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Risk Management

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  1. Risk Management Exercises

  2. Exercise Value at Risk calculations

  3. Problem Consider a stock S valued at $1 today, which after one period can be worth ST: $2 or $0.50. Consider also a convertible bond B, which after one period will be worth max(1, ST). Determine which is the following three portfolios has lower VaR: • B • B-S • B+S

  4. FRM exam 1999 The VaR of one asset is 300, and another one is 500. If the correlation between changes in asset prices is 1/15, what is the combined VaR? • 525 • 775 • 600 • 700

  5. Exercise Hedging

  6. Problem Consider a stock S valued at $1 today, which after one period can be worth ST: $2 or $0.50. Consider also a convertible bond B, which after one period will be worth max(1, ST). Determine the optimal trading strategy adding a stock portfolio to the bond.

  7. Exercise Credit risk

  8. Problem Consider a stock S valued at $1 today, which after one period can be worth ST: $2 or $0.50. Consider also a convertible bond B, which after one period will be worth max(1, ST). Assume the stock can default, after which event ST=0. Determine which is the following three portfolios has lower Credit-VaR: • B • B-S • B+S

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