Академический Документы
Профессиональный Документы
Культура Документы
Problem:
A portfolio consists of following assets:
1. Step-1
Get the exchange rates for all currencies. Here exchange rates from April-04, 2005 to March-31, 2006, for all
currencies are taken. And we want to calculate the portfolio VaR for April-01, 2006 . Suppose,
Ei ,cad / sek = Exchange rate for cad/sek for date i, i = 4 / 4 / 2005,.................,31/ 3 / 2006
Ei ,chf / sek = Exchange rate for chf/sek for date i, i = 4 / 4 / 2005,.................,31/ 3 / 2006
Ei ,eur / cad = Exchange rate for eur/cad for date i, i = 4 / 4 / 2005,.................,31/ 3 / 2006
Ei ,eur / ron = Exchange rate for eur/ron for date i, i = 4 / 4 / 2005,.................,31/ 3 / 2006
Ei ,nok / sek = Exchange rate for nok/sek for date i, i = 4 / 4 / 2005,.................,31/ 3 / 2006
Ei ,usd / jpy = Exchange rate for usd/jpy for date i, i = 4 / 4 / 2005,.................,31/ 3 / 2006
Ei ,usd / mxn = Exchange rate for usd/mxn for date i, i = 4 / 4 / 2005,.................,31/ 3 / 2006
Ei ,usd / zar = Exchange rate for usd/zar for date i, i = 4 / 4 / 2005,.................,31/ 3 / 2006
Ei ,usd / krw = Exchange rate for usd/krw for date i, i = 4 / 4 / 2005,.................,31/ 3 / 2006
2. Step-2
We calculate the return for each exchange rate. Using the following formula:
E
Ri ,cad / sek = ln i -1,cad / sek , i, i = 5 / 4 / 2005,.................,31/ 3 / 2006
E
i ,cad / sek
Similarly other returns for other currency exchange, up to USD/ZAR have been calculated.
Here we 1st calculated the option prices for each date, using the following formula:
- rf t
p = -s e (- d1 ) + x e - rd t (- d 2 )
d 2 = d1 - s t
s s2
ln + rd - rf + t
x 2
d1 =
s t
Where,
S = USD/KRW spot exchange rate. On 4/4/2005, it is 1013.20
K = Strike exchange rate, 923
351
t = Time to maturity in YEAR, = 1.404 Year
250
r f = Riskless rate of a interest for US [NOT in percentage] on 4/4/2005, 0.0278
r d = Riskless rate of a interest for KR [NOT in percentage] on 4/4/2005, 0.0371
s = Annualized volatility measured from GARCH(1,1)
This is the Put option price in KRW. So we have to convert it in USD. To do so we divide the Put option
price, which is in KRW by 985.513, USD/KRW exchange rate on March-31,2006. So for each date we get
the Put-option price in USD. Suppose we denote this as : Pi , i = 4 / 4 / 2005,.................,31/ 3 / 2006
4. Step-4
6. Step-6
Draw a random sample of size 1000 from N (0,1) , and repeat this 9 times. So we get a random matrix
Rand 10009
7. Step-7
Calculate ( z%
1
1000
1
, z210001 ,.....z910001 ) = Z 10009 = ( A99 Rand 91000 )
% %
. This gives a random matrix
whose columns are correlated according to C . Each column of Z multiplied with s i , i = 1,...,9 , SD of
Return for ith asset, gives the simulated return for each asset in our portfolio for next day. For example
s 1 z110001 gives the simulated return price for CAD/SEK exchange for April-1, 2006.
%
8. Step-8
Now we calculate the value of exposure for each asset in USD on March-31, 2006. This is given by the
vector:
P0 = ( P0 j ) = ( -224453.25,-416841.75,-1714310,-585004,-2565180,6000000,-4000000,4000000,100000 )
%
Step-9
Now we construct the simulated asset P/L matrix p110009 = (( p ))
1i , j for date April-1, 2006. Where
p1i , j = p0j e ( s j Zi , j
)
- 1 , j = 1, 2,...,9 i = 1, 2,....,1000
Step-10
10009
We calculate the 1000 scenarios of Portfolio P/L by adding the elements of each row of p1 . Let it is
9
G 1000
1
where i element of G
th 1000
1
is gi = p1i , j , i = 1,....,1000 .
% % j =1
Step-11
We calculate the 5th percentile for gi ' s . This gives the portfolio VaR in USD. For our calculation it is
126992.09 USD. Suppose it corresponds to kth element of G . And the component VaR for ith asset in our
%
portfolio is given by 1 USD. p i ,k