Suppose that on March 27, 2020, an investor owns euro 100,000 of the French OAT benchmark 7.5% maturing in April 2030. This bond pays coupon flows of euro 7,500 each over the next 10 years and returns the principal investment at maturity. One of these flows occurs in 6.08 years, between the standard vertices of 5 and 7 years (for which volatilities and correlations are available).

3. Calculate the standard deviation of the price return on the actual cash flow. Please remember that the volatility represents 1.65xt.

4. Calculate both and (1-). Again you need to convert 1.65t into t

5. Then allocate the present value of cash flow into RiskMetrics vertex cash flows. That means cash flow for vertex 5 and cash flow for vertex 7.

Risk Metrics. yeild %. price volatility. correlation Matrix

Vertes. 1.65at. 5 yr. 7 yr

5 yr. 7.628. 0.533. 1.00. 0.963

7 yr. 7.794. 0.696. 0.964. 1.0

please let me know if you need more info