Question

[reda2mohamed]

Question:
A portfolio has consisted of Bonds zero coupon value equal to $20.000.000 Worth having 6 years و Average market interest rate 10% if Decreased interest rate 20bp, Level of confidence 90%
what daily VaR?

 

[David Harper CFA FRM]

@reda2mohamed what is the source, please? I've written and reviewed questions for 10 years, and it's just not well-formulated. It's fuzzy with multiple interpretations, IMO. For example, maybe the "worth having 6 years" is broken English that intends to convey duration of 6.0 years (?). And maybe 20 bps is the daily yield volatility (normally distributed?). In which case, ΔP/P = -D*Δy can be used such that 1.28 is the 90% normal deviate and and ΔP/P = -6.0 years*(.002*1.28) = 1.54%; and the VaR is 1.54% * $20,000 = $307.57, but please don't quote me, that's a wild guess. The question is not well formulated in my opinion. Thanks,