In the previous video, we learned about the calculation of the un-diversified VaR of the two-asset bond portfolio. This video explains Jorion’s Table 11-4 which calculates diversified value at risk (VaR) for the same bond portfolio. The key difference is that diversified VaR should be lower to reflect the benefit of imperfect correlations. This video […]
This video illustrates the calculation of undiversified value at risk (VaR) for a two-bond portfolio. This video is developed by David from Bionic Turtle.
First, we used the formula for the value of a forward contract to identify the three risk factors. This is the essential mapping idea: we characterize the portfolio as a set of exposures to underlying risk factors. In this case, a forward currency contract maps to a long position in a foreign currency spot rate, […]
A European stock option can be mapped to two positions: 1. A Long position in the asset, plus 2. a short position in underlying bill (i.e., interest rate factor). This video is developed by David from Bionic Turtle.
Bond risk can be measured by “price returns value at risk (VaR)” where the price returns VaR is linked to yield VaR with duration. This video is regarded by David from Bionic Turtle.
This video by explains the concept of mapping fixed income portfolios to risk factors. Why map portfolios to risk factors? It’s a shortcut because portfolios are complicated; e.g., even delta-normal VaR employing a covariance matrix contains n(n+1)/2 pair-wise correlations in a dreaded “curse of dimensionality.” The reality of a portfolio’s true risk exposure is both […]
This video demonstrates the basic functionality of the Texas Instruments BA II Plus Financial Calculator. It teaches you how to use the calculator to calculate the yield of a bond. Given four inputs (price, term/maturity, coupon rate, and face/par value), we can use the calculator’s I/Y to find the bond’s yield (yield to maturity). This […]
This video demonstrates the basic functionality of the Texas Instruments BA II Plus Financial Calculator. It teaches you how to use the calculator to calculate the price of a bond. What is the price of a 10-year $1,000 face value bond with a coupon rate of 4.0% that pays annually, if the yield is 6.0%? […]
Below are the recommendations with respect to improving the control environment at Allfirst and AIB. The controls in AIB should be benchmarked against these to ensure consistency First, business strategy in the trading areas should be reconsidered, specially proprietary trading. The scope and location of all proprietary trading activity within the AIB Group should be […]
There were many early warning indicators or missed opportunities for AIB or Allfirst to have detected Mr. Rusnak’s fraud. These missed opportunities are discussed below: 1. Failures of Rusnak’s superiors to adequately supervise his activity Mr. Rusnak’s supervisors— his departed trading manager, the treasury funds manager, and the treasurer— failed to examine in any depth […]