Value At Risk (VaR)....1

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Value At Risk (VaR)....1

Postby swarnendupathak » Mon Nov 05, 2012 12:16 pm

Estimate the VaR of a 3x6 JPY 100 mn FRA. Assume that the extreme move for 3 month JPY LIBOR is 17bp & 6 months JPY LIBOR is 20 bp & correlation between 3 & 6 months rates is 0.95.
(a) JPY 50000
(b) JPY 61000
(c) JPY 85000
(d) JPY 141000

Please state the logic behind the axplanation



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Re: Value At Risk (VaR)....1

Postby balajismz » Mon Nov 05, 2012 3:17 pm

I saw this.....if you use principle of subattivity then the volatilities should actually be subtracted, not added.


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Re: Value At Risk (VaR)....1

Postby content.pristine » Tue Nov 06, 2012 2:21 pm

Thats absolutely right Balaji :D
The reasoning behind this, is the underlying rate is the 3 month forward occuring 3 months from now.
When we work this value mathematically, it is directly related to the 6 month rate and inversely related to the 3 month rate.


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Re: Value At Risk (VaR)....1

Postby AMITAG1990 » Tue Nov 06, 2012 2:37 pm

what is a ans. of this question.

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