2) $5,000,000 in AAA coupon corporate Bonds, 10-year maturity. 3) $15,000,000 in S&P500 index. The home currency of your investment is the US dollar. Dollar/Pound SP500 6 7 8 10 11 12 13 14 9 Compute the 1% VaR of each position and the VaR of the entire portfolio given the following additional information: a. The bond is trading at a yield to maturity of 2.67% with a 98% market value. b. The equity position has a B=1 c. You are given 501 daily observations of the exchange rate level, the 10-year corporate yield, and SP500 index, all between 2019 and 2021. 15 Compute the sensitivity of each position, that is the delta of each position on the most recent day given. After you control for the volatility and 16 the potential adverse move in each position, calculate the the 1% VaR for the entire portfolio. That is, identify the worst-case scenario with a 99% degree of confidence. Explain the meaning of your result. 19 d. The correlations among the three assets are given by the following correlation matrix (in the table to the right). 17 18 20 21 22 23 Observations observation_date 24 1 2021-12-10 25 2 2 2021-12-09 26 3 2021-12-08 27 4 2021-12-07 28 5 2021-12-06 29 6 2021-12-03 30 7 2021-12-02 31 8 2021-12-01 32 9 2021-11-30 33 10 2021-11-29 34 11 2021-11-26 35 12 2021-11-24 36 13 2021-11-23 37 14 2021-11-22 38 15 2021-11-19 39 16 2021-11-18 40 17 2021-11-17 41 18 2021-11-16 42 19 2021-11-15 43 20 2021-11-12 44 21 2021-11-10 45 22 2021-11-09 46 23 2021-11-08 47 24 2021-11-05 48 25 2021-11-04 49 26 2021-11-03 50 27 2021-11-02 51 28 2021-11-01 52 29 2021-10-29 53 30 2021-10-28 54 31 2021-10-27 55 32 2021-10-26 56 33 2021-10-25 57 34 2021-10-22 58 35 2021-10-21 59 36 2021-10-20 60 37 2021-10-19 61 38 2021-10-18 62 39 2021-10-15 63 40 2021-10-14 US_UK 1.3262 1.3188 1.3236 1.3236 1.3252 1.3234 1.3305 1.3308 1.3252 1.3291 1.3322 1.3332 1.3388 1.3412 1.3474 1.3489 1.3488 1.3429 1.3444 1.3412 1.3470 1.3551 1.3563 1.3491 1.3494 1.3659 1.3612 1.3679 1.3686 1.3804 1.3739 1.3772 1.3773 1.3741 1.3812 1.3821 1.3807 1.3726 1.3756 1.3684 observation_date 2021-12-10 2021-12-09 2021-12-08 2021-12-07 2021-12-06 2021-12-03 2021-12-02 2021-12-01 2021-11-30 2021-11-29 2021-11-26 2021-11-24 2021-11-23 2021-11-22 2021-11-19 2021-11-18 2021-11-17 2021-11-16 2021-11-15 2021-11-12 2021-11-10 2021-11-09 2021-11-08 2021-11-05 2021-11-04 2021-11-03 2021-11-02 2021-11-01 2021-10-29 2021-10-28 2021-10-27 2021-10-26 2021-10-25 2021-10-22 2021-10-21 2021-10-20 2021-10-19 2021-10-18 2021-10-15 2021-10-14 AAA_CorpBond 2.67% 2.65% 2.63% 2.56% 2.54% 2.49% 2.59% 2.59% 2.57% 2.67% 2.61% 2.72% 2.76% 2.70% 2.63% 2.69% 2.66% 2.71% 2.66% 2.61% 2.57% 2.46% 2.50% 2.50% 2.58% 2.64% 2.63% 2.61% 2.59% 2.61% 2.59% 2.70% 2.72% 2.72% 2.76% 2.73% 2.70% 2.63% 2.66% 2.62% observation_date 2021-12-10 2021-12-09 2021-12-08 2021-12-07 2021-12-06 2021-12-03 2021-12-02 2021-12-01 2021-11-30 2021-11-29 2021-11-26 2021-11-24 2021-11-23 2021-11-22 2021-11-19 2021-11-18 2021-11-17 2021-11-16 2021-11-15 2021-11-12 2021-11-10 2021-11-09 2021-11-08 2021-11-05 2021-11-04 2021-11-03 2021-11-02 2021-11-01 2021-10-29 2021-10-28 2021-10-27 2021-10-26 2021-10-25 2021-10-22 2021-10-21 2021-10-20 2021-10-19 2021-10-18 2021-10-15 2021-10-14 SP500 4712.02 4667.45 4701.21 4686.75 4591.67 4538.43 4577.10 4513.04 4567.00 4655.27 4594.62 4701.46 4690.70 4682.94 4697.96 4704.54 4688.67 4700.90 4682.80 4682.85 4646.71 4685.25 4701.70 4697.53 4680.06 4660.57 4630.65 4613.67 4605.38 4596.42 4551.68 4574.79 4566.48 4544.90 4549.78 4536.19 4519.63 4486.46 4471.37 4438.26 2) $5,000,000 in AAA coupon corporate Bonds, 10-year maturity. 3) $15,000,000 in S&P500 index. The home currency of your investment is the US dollar. Dollar/Pound SP500 6 7 8 10 11 12 13 14 9 Compute the 1% VaR of each position and the VaR of the entire portfolio given the following additional information: a. The bond is trading at a yield to maturity of 2.67% with a 98% market value. b. The equity position has a B=1 c. You are given 501 daily observations of the exchange rate level, the 10-year corporate yield, and SP500 index, all between 2019 and 2021. 15 Compute the sensitivity of each position, that is the delta of each position on the most recent day given. After you control for the volatility and 16 the potential adverse move in each position, calculate the the 1% VaR for the entire portfolio. That is, identify the worst-case scenario with a 99% degree of confidence. Explain the meaning of your result. 19 d. The correlations among the three assets are given by the following correlation matrix (in the table to the right). 17 18 20 21 22 23 Observations observation_date 24 1 2021-12-10 25 2 2 2021-12-09 26 3 2021-12-08 27 4 2021-12-07 28 5 2021-12-06 29 6 2021-12-03 30 7 2021-12-02 31 8 2021-12-01 32 9 2021-11-30 33 10 2021-11-29 34 11 2021-11-26 35 12 2021-11-24 36 13 2021-11-23 37 14 2021-11-22 38 15 2021-11-19 39 16 2021-11-18 40 17 2021-11-17 41 18 2021-11-16 42 19 2021-11-15 43 20 2021-11-12 44 21 2021-11-10 45 22 2021-11-09 46 23 2021-11-08 47 24 2021-11-05 48 25 2021-11-04 49 26 2021-11-03 50 27 2021-11-02 51 28 2021-11-01 52 29 2021-10-29 53 30 2021-10-28 54 31 2021-10-27 55 32 2021-10-26 56 33 2021-10-25 57 34 2021-10-22 58 35 2021-10-21 59 36 2021-10-20 60 37 2021-10-19 61 38 2021-10-18 62 39 2021-10-15 63 40 2021-10-14 US_UK 1.3262 1.3188 1.3236 1.3236 1.3252 1.3234 1.3305 1.3308 1.3252 1.3291 1.3322 1.3332 1.3388 1.3412 1.3474 1.3489 1.3488 1.3429 1.3444 1.3412 1.3470 1.3551 1.3563 1.3491 1.3494 1.3659 1.3612 1.3679 1.3686 1.3804 1.3739 1.3772 1.3773 1.3741 1.3812 1.3821 1.3807 1.3726 1.3756 1.3684 observation_date 2021-12-10 2021-12-09 2021-12-08 2021-12-07 2021-12-06 2021-12-03 2021-12-02 2021-12-01 2021-11-30 2021-11-29 2021-11-26 2021-11-24 2021-11-23 2021-11-22 2021-11-19 2021-11-18 2021-11-17 2021-11-16 2021-11-15 2021-11-12 2021-11-10 2021-11-09 2021-11-08 2021-11-05 2021-11-04 2021-11-03 2021-11-02 2021-11-01 2021-10-29 2021-10-28 2021-10-27 2021-10-26 2021-10-25 2021-10-22 2021-10-21 2021-10-20 2021-10-19 2021-10-18 2021-10-15 2021-10-14 AAA_CorpBond 2.67% 2.65% 2.63% 2.56% 2.54% 2.49% 2.59% 2.59% 2.57% 2.67% 2.61% 2.72% 2.76% 2.70% 2.63% 2.69% 2.66% 2.71% 2.66% 2.61% 2.57% 2.46% 2.50% 2.50% 2.58% 2.64% 2.63% 2.61% 2.59% 2.61% 2.59% 2.70% 2.72% 2.72% 2.76% 2.73% 2.70% 2.63% 2.66% 2.62% observation_date 2021-12-10 2021-12-09 2021-12-08 2021-12-07 2021-12-06 2021-12-03 2021-12-02 2021-12-01 2021-11-30 2021-11-29 2021-11-26 2021-11-24 2021-11-23 2021-11-22 2021-11-19 2021-11-18 2021-11-17 2021-11-16 2021-11-15 2021-11-12 2021-11-10 2021-11-09 2021-11-08 2021-11-05 2021-11-04 2021-11-03 2021-11-02 2021-11-01 2021-10-29 2021-10-28 2021-10-27 2021-10-26 2021-10-25 2021-10-22 2021-10-21 2021-10-20 2021-10-19 2021-10-18 2021-10-15 2021-10-14 SP500 4712.02 4667.45 4701.21 4686.75 4591.67 4538.43 4577.10 4513.04 4567.00 4655.27 4594.62 4701.46 4690.70 4682.94 4697.96 4704.54 4688.67 4700.90 4682.80 4682.85 4646.71 4685.25 4701.70 4697.53 4680.06 4660.57 4630.65 4613.67 4605.38 4596.42 4551.68 4574.79 4566.48 4544.90 4549.78 4536.19 4519.63 4486.46 4471.37 4438.26