Var & Modified Duration

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Var & Modified Duration

Postby balajismz » Tue Nov 06, 2012 8:02 am

A portfolio consists of two zero coupon bonds, each with a current value of USD 10. The first bond has a modified duration of 1 year and the second has a modified duration of 9 years. The yield curve is flat and all yields are 5%. Assume all moves of the yield curve are parallel shifts. Given that the daily volatility of the yield is 1%, which of the following is the best estimate of the portfolio daily VaR at the 95% confidence level?
Choose one answer.
a. USD 0.82
b. USD 2.33
c. USD 1.65
d. USD 1.16


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Posts: 356
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Re: Var & Modified Duration

Postby content.pristine » Thu Nov 08, 2012 1:17 pm


This is pretty straight forward
VaR = Portfolio Valu * Z * Portf Duration * SD of Yield
= 20*1.645*5*0.01
= 1.645


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