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Suppose that the change in a portfolio value for a onebasispoint shift in the 1, 2, 3, 4, 5, 7, 10, and 30year rates are
Suppose that the change in a portfolio value for a onebasispoint shift in the 1, 2, 3, 4, 5, 7, 10, and 30year rates are (in $ millions) -3, -2, -1 , +1, +3, +5, +7, and +8, respectively. Estimate the delta of the portfolio with respect to the first three Principal Component factors of the following Table. Quantify the relative importance of the three factors for this portfolio.
lac LIIS PC1 PC3 PC7 0.63 0.01 0.22 0.33 PC2 -0.50 -0.43 -0.27 -0.11 1-year 2-year 3-year 4-year 5-year 7-year 10-year 30-year 0.37 0.39 0.40 0.39 0.38 Factor loadings PC4 PC5 -0.49 0.12 0.35 -0.21 0.41 -0.10 0.17 -0.02 -0.27 0.60 -0.34 0.01 -0.31 -0.68 0.40 0.13 -0.16 -0.26 -0.36 -0.195 0.07 0.58 PC6 0.24 -0.67 0.31 0.55 -0.28 -0.10 -0.04 0.02 -0.10 0.41 -0.42 -0.32 0.69 -0.28 PC8 -0.03 0.24 -0.56 0.51 -0.33 0.42 -0.28 0.03 0.02 0.19 0.37 0.31 0.55 0.33 0.01 PC1 PC2 4.77 Standard deviation of factor scores PC3 PC4 PCS PC6 2.08 1.29 0.91 0.73 PC7 0.56 PC8 0.53 17.55 lac LIIS PC1 PC3 PC7 0.63 0.01 0.22 0.33 PC2 -0.50 -0.43 -0.27 -0.11 1-year 2-year 3-year 4-year 5-year 7-year 10-year 30-year 0.37 0.39 0.40 0.39 0.38 Factor loadings PC4 PC5 -0.49 0.12 0.35 -0.21 0.41 -0.10 0.17 -0.02 -0.27 0.60 -0.34 0.01 -0.31 -0.68 0.40 0.13 -0.16 -0.26 -0.36 -0.195 0.07 0.58 PC6 0.24 -0.67 0.31 0.55 -0.28 -0.10 -0.04 0.02 -0.10 0.41 -0.42 -0.32 0.69 -0.28 PC8 -0.03 0.24 -0.56 0.51 -0.33 0.42 -0.28 0.03 0.02 0.19 0.37 0.31 0.55 0.33 0.01 PC1 PC2 4.77 Standard deviation of factor scores PC3 PC4 PCS PC6 2.08 1.29 0.91 0.73 PC7 0.56 PC8 0.53 17.55
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