rahul.goyl
Member
Hi David,
Would appreciate for your help in understanding the below, should we count them in Quant section - Any particular reason for such wierd Question in Handbook.
Assume that the DV01 of an interest rate swap is proportional to its time to maturity (which at the initiation is equal to T). Assume that interest rate curve moves are parallel, stochastic with constant volatility, normally distributed, and independent. At what time will the maximum potential exposure be reached?
Choose one answer.
a. T/4
b. T/3
c. T/2
d. 3T/4
Determine at what point in the future a derivatives portfolio will reach its maximum potential exposure. All the derivatives are on one underlying, which is assumed to move in a stochastic fashion (variance in the underlying’s value increases linearly with time passage).
The derivatives portfolio’s sensitivity to the underlying is expected to drop off as (T - t) ^2, where T is the time from today until the last contract in the portfolio rolls off, and t is the time from today.
Choose one answer.
a. St1: T/5
b. St2: T/3
c. St3: T/2
d. None of the given statement
Thanks
Rahul
Would appreciate for your help in understanding the below, should we count them in Quant section - Any particular reason for such wierd Question in Handbook.
Assume that the DV01 of an interest rate swap is proportional to its time to maturity (which at the initiation is equal to T). Assume that interest rate curve moves are parallel, stochastic with constant volatility, normally distributed, and independent. At what time will the maximum potential exposure be reached?
Choose one answer.
a. T/4
b. T/3
c. T/2
d. 3T/4
Determine at what point in the future a derivatives portfolio will reach its maximum potential exposure. All the derivatives are on one underlying, which is assumed to move in a stochastic fashion (variance in the underlying’s value increases linearly with time passage).
The derivatives portfolio’s sensitivity to the underlying is expected to drop off as (T - t) ^2, where T is the time from today until the last contract in the portfolio rolls off, and t is the time from today.
Choose one answer.
a. St1: T/5
b. St2: T/3
c. St3: T/2
d. None of the given statement
Thanks
Rahul
