Estimate parametric market var, Financial Accounting

Assignment Help:

You have an investment in a portfolio with a counterparty whose current credit rating is Baa. The current market value of the portfolio is $50,000,000 and its annual volatility is 40%. Given below are the credit transition matrix and the 1 year default probabilities.
Transition Matrix (As Percentages):

Aaa Aa A Baa Ba B Caa Ca-C D

Baa 0.05 0.34 4.94 87.79 5.54 0.84 0.17 0.02 0.01

Default Probability (As Percentages):

Aaa Aa A Baa Ba B Caa Ca-C D

0 0.008 0.02 0.017 1.125 4.66 17.723 25.213 1

a. Estimate the 1 year 99% Parametric Market VAR (Credit Exposure) for the investment (z = 2.33). Note: For parametric VAR we assume normal distribution.

b. Attached Excel spreadsheet shows the results of 1000 random draws from a standard normal distribution. Using these values and the tables above, estimate the distribution of one year default probabilities and credit losses (Credit Loss = Market VAR*default Probability).

c. Estimate the 99% Credit VAR

 


Related Discussions:- Estimate parametric market var

Permanent accounts would not include in accounts, Permanent accounts would ...

Permanent accounts would not include a interest expense b wage payable c prepaid rent d unearned revenues

Calculate the risk premium , Question: Zelo, Inc. stock has a beta of 1...

Question: Zelo, Inc. stock has a beta of 1.23. The risk-free rate of return is 4.5% and the market rate of return is 10%. What is the amount of the risk premium on Zelo stock?

Analytical procedures of substantive tests, Analytical Procedures - Substan...

Analytical Procedures - Substantive tests of financial information that examine relationships among data as a means of obtaining evidence. Such procedures include: (1) comparison o

Calculate the profitability of company - investment decision, In no more th...

In no more than one typed page, provide a statement of your decision to invest or not invest in this company's stock based on your interpretation of the company's long-term prospec

What is the internal rate of return of the project, Hydroponics is consider...

Hydroponics is considering adding another greenhouse that would cost $95,000 and generate $20,000 in annual net cash flows over its 8 year expected life. What is this project's int

Determine the increase in the nominal interest rate, Money demand in an eco...

Money demand in an economy in which no interest is paid on money is M d /P = 500 + 0.2Y - 1000i (a) Suppose that P = 100, Y = 1000, and i = 0.10. Find real money demand, nomi

Integer programming, Proposals A, B, C, D, E, and F are being considered wi...

Proposals A, B, C, D, E, and F are being considered with money flows over 10 years. Proposal (A and D) are mutually exclusive, (C and F) are also mutually exclusive, and pr

The income statement-financial statement, THE INCOME STATEMENT It shows t...

THE INCOME STATEMENT It shows the financial performance of the company during the given financial period. It discloses the income and expenses and thus the net profit for the per

Evaluate value of rights per existing share, Q. Evaluate Value of rights pe...

Q. Evaluate Value of rights per existing share? Rights issue price = 4·00 × 0·85 = $3·40 Theoretical ex rights price = ((5 × 4·00) + 3·40)/6 = $3·90 Value of rights per e

Various types of accounting changes can affect the financial, Various types...

Various types of accounting changes can affect the financial statements of a business enterprise differently. Assume that the following list describes changes that have a material

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd