Explain two alternatives that give more accuracy

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A company has a position in bonds worth $6 million. The modified duration of the portfolio is 5.2 years.

Assume that only parallel shifts in the yield curve can take place and that the standard deviation of the daily yield change (when yield is measured in percent) is 0.09.

Use the duration model to estimate the 20-day 90% VaR for the portfolio. Explain carefully the weaknesses of this approach to calculating VaR. Explain two alternatives that give more accuracy.

Reference no: EM131239543

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