VAR question

Good Student
Posts: 21
Joined: Fri Aug 17, 2012 3:27 pm

VAR question

Postby d2syh » Fri Nov 09, 2012 3:18 pm

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 1.16
b. USD 0.82
c. USD 2.33
d. USD 1.65
The Correct answer is USD 1.65

Can please explain the derivation?

Finance Junkie
Posts: 356
Joined: Wed Apr 11, 2012 11:26 am

Re: VAR question

Postby content.pristine » Mon Nov 12, 2012 2:12 pm

Take a look at the post:


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