IndyMac was the 7th largest mortgage lender in 2008, but it went bankrupt in July 2008 (and was one of the largest lenders to file for bankruptcy). IndyMac's end-of-2007 annual report has a "Sensitivity to Market Risk" section in which it says: "We use a Value-at-Risk (VAR) measure to monitor the interest rate risk of our assets. We have chosen a historical approach that uses 500 days of market conditions along with portfolio data to estimate the potential one-day loss at a 95% confidence interval. As of December 31, 2007, the mortgage-backed securities portfolio was valued at $6.4 billion. The average VAR for the year on the MBS portfolio was $1.3 million, or 2 basis points. (a) Given this, why is Indy Mac bankrupt? What went wrong with the models? (If you need it, recall that a 95% confidence interval is equivalent to 1.6450.) (b) Assume you are a VAR consultant to Indy Mac. What advice would you have given IndyMac at the end of 2007? (c) Fast forward to November 2020 - and assume you are a VAR consultant. What advice would you give your clients about measuring and managing market risk heading into 2021? IndyMac was the 7th largest mortgage lender in 2008, but it went bankrupt in July 2008 (and was one of the largest lenders to file for bankruptcy). IndyMac's end-of-2007 annual report has a "Sensitivity to Market Risk" section in which it says: "We use a Value-at-Risk (VAR) measure to monitor the interest rate risk of our assets. We have chosen a historical approach that uses 500 days of market conditions along with portfolio data to estimate the potential one-day loss at a 95% confidence interval. As of December 31, 2007, the mortgage-backed securities portfolio was valued at $6.4 billion. The average VAR for the year on the MBS portfolio was $1.3 million, or 2 basis points. (a) Given this, why is Indy Mac bankrupt? What went wrong with the models? (If you need it, recall that a 95% confidence interval is equivalent to 1.6450.) (b) Assume you are a VAR consultant to Indy Mac. What advice would you have given IndyMac at the end of 2007? (c) Fast forward to November 2020 - and assume you are a VAR consultant. What advice would you give your clients about measuring and managing market risk heading into 2021