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Use the following discount factors when needed: T 0.25 0.50 0.75 1.00 1.25 1.50 1.75 2.00 5.00 Z(0,7) 0.9840 0.9680 0.9520 0.9360 0.9190 0.9040 0.8880
Use the following discount factors when needed: T 0.25 0.50 0.75 1.00 1.25 1.50 1.75 2.00 5.00 Z(0,7) 0.9840 0.9680 0.9520 0.9360 0.9190 0.9040 0.8880 0.8730 0.7274 A portfolio manager has $100 million invested in a bond portfolio with the duration equal to 5. Assume the the yield curve changes are parallel and normally distributed with a monthly mean of O basis point and a monthly standard deviation of 40 basis points (0.40%). Explain how the portfolio manager would calculate the 1-month 95% and 99% Value-at-Risk of her bond portfolio based on this information. Recall N(1.6449) = 0.95 and N(2.3263) = 0.99, where N(-) is the cumulative distribution function of a standard normal random variable
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