P2.T7. Hull Chapter 12: End of Chapter Q&A

[Rolme]

Hi @David Harper CFA FRM CIPM

For all results in Question 12.6. I get half of the results provided in the solution so I'm wondering if there's something systematic I'm missing (my calculations below the question):

12.6 Estimate the capital required under Basel I for a bank that has the following transactions
with a corporation. Assume no netting. a. A nine-year interest rate swap with a notional principal
of $250 million and a current market value of −$2 million. b. A four-year interest rate swap with a
notional principal of $100 million and a current value of $3.5 million. c. A six-month derivative on
a commodity with a principal of $50 million that is currently worth $1 million.


The risk-weighted assets for the three transactions are (a) $ 1.875 million, (b) $ 2 million,
and (c) $ 3 million for a total of $ 6.875 million. The capital required is 0.08 × 6.875 or $
0.55 million.


My Results:

(a) 250 * 1.5% = 3.75
(b) 3.5 + 100*0.5% = 4
(c) 1 + 50*10% = 6

Total = 13.75 -> Required Capital 13.75 *8% = 1.1

Weights are taken from Study Notes page 6.


Thanks,
Roland

 

[Rolme]

12.17:

I don't understand how he arrives at a rho of 0.1216. I tried both ways of calculating it (they really deliver the same results) and come up with 0.19278 in both cases.

maybe someone has a clue