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Using Monte Carlo simulation evaluate and interpret the value at risk for a bond for the ten worst scenarios over the next 3 days using
- Using Monte Carlo simulation evaluate and interpret the value at risk for a bond for the ten worst scenarios over the next 3 days using the following information: the present value of the one-year Eurobond is 650 thousand Euro. The current AUD/EURO exchange rate is 0.55. Historical daily volatilities of the $/Euro exchange rate and the bond price are 0.005 and 0.003, respectively. The historic correlation is 0.61. Use 1000 random trials.
2. A manger of FI has a portfolio of different assets.
- a. She computed the individual asset DEARs and would like to sum them up to compute the portfolio DEAR. Can she compute the portfolio DEAR in this way? Explain why.
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