Value At Risk (VaR)....1

swarnendupathak
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Value At Risk (VaR)....1

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

Swarnendu

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

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

Balaji

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

Thats absolutely right Balaji
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.

AMITAG1990
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Re: Value At Risk (VaR)....1

what is a ans. of this question.