breach ONE: INTRODUCTION In this case we atomic number 18 exhalation to help the manager of Smallbank, Calvin Lossal, to assess the banks quick portfolio by VaR method and find if at that place is both possible adjustment. The bank is exposed to quite a some pretends such as the credit risk from counterparty, market risk from the change of interest stride, and also risks from liquidating assets as headspring as operational risk, strategic risk etc. In this cover we mainly use Value-at-risk to identify the banks overall trade risk. VaR is a probabilistic handbill of the range of measure out a firms portfolio could lose due to market volatility. Its simply a statement of probable expiry during a certain period. Our paper is divided into cardinal parts. initial we go away briefly cut in the calculation procedures of VaR and its surmises under different approaches. Second we will analyze the results and then arrest some suggestions. The bank had 1,000 one dollar bill cash as capital, and the value of the portfolio was 356,904 dollar, which consisting of 2-year US Government mystify with seem value 100,000 dollar, 5-year German Government Bond with face value of 300,000 Deutch scratch line and Deutch Mark Currency 100,000. Meanwhile, we had two-year time series data of 2-year US interest rate, 5-year German interest rate and the exchange rate of these two currencies.
PART TWO: THREE APPROACHES We used three ways to induce the portfolio VaR in this case. Correlation approach The basic assumption of the coefficient of correlational statistics approach is to view in asset returns bo ost normal distribution. The second assumpti! on is that there is constant correlation between risk factors (i.e. interest rate, exchange rate). During the calculation, we also win that we buy a par value bond identification number and mark it to the next-day market price to calculate its return. We did not do the mark-to-market Deutch Mark conversion for any of the approach, because it will greatly auxiliary our VaR while its not feasible...If you want to get a full essay, order it on our website: OrderEssay.net
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