Question
1.A portfolio manager holds a short $150 million position in 10-year Treasury notes with a daily volatility of 0.7%. (a)What is the one-day VaR of
1.A portfolio manager holds a short $150 million position in 10-year Treasury notes with a daily volatility of 0.7%.
(a)What is the one-day VaR of this position? For the computation of VaR, assume normal distribution and a 95% confidence level. .
(b)The manager decides to hedge his position by buying 100 million 7-year Treasury notes with a daily volatility of 0.5%. The correlation between the 7-year note and the original 10-year note is 0.97. What is the 95% one-day VaR of this hedged position?
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Introduction to Finance Markets, Investments and Financial Management
Authors: Ronald W. Melicher, Edgar A. Norton
16th edition
1119398282, 978-1-119-3211, 1119321115, 978-1119398288
