Estimate parametric market var, Financial Accounting

You have an investment in a portfolio with a counterparty whose current credit rating is Baa. The current market value of the portfolio is $50,000,000 and its annual volatility is 40%. Given below are the credit transition matrix and the 1 year default probabilities.
Transition Matrix (As Percentages):

Aaa Aa A Baa Ba B Caa Ca-C D

Baa 0.05 0.34 4.94 87.79 5.54 0.84 0.17 0.02 0.01

Default Probability (As Percentages):

Aaa Aa A Baa Ba B Caa Ca-C D

0 0.008 0.02 0.017 1.125 4.66 17.723 25.213 1

a. Estimate the 1 year 99% Parametric Market VAR (Credit Exposure) for the investment (z = 2.33). Note: For parametric VAR we assume normal distribution.

b. Attached Excel spreadsheet shows the results of 1000 random draws from a standard normal distribution. Using these values and the tables above, estimate the distribution of one year default probabilities and credit losses (Credit Loss = Market VAR*default Probability).

c. Estimate the 99% Credit VAR

 

Posted Date: 3/25/2013 4:16:43 AM | Location : United States







Related Discussions:- Estimate parametric market var, Assignment Help, Ask Question on Estimate parametric market var, Get Answer, Expert's Help, Estimate parametric market var Discussions

Write discussion on Estimate parametric market var
Your posts are moderated
Related Questions
Presentations of Financial Statements The objective is to give guidance regarding the preparation of published financial statements and prescribe the content of the published fin

Craig's Cars has assets of $4,550 and stockholders' equity of $3,200. What is the amount of liabilities? What is the amount of claims?

The following information is for the third quarter of this year:   Planned Actual   Production 92,000 units


Q. Define Constant working capital? The supposition of constant working capital should be investigated. Net working capital is probable to increase in line with sales and so ad

HOW TO RECORD INVENTORY AT NET REALISABLE VALUE ON JOURNAL

ACCUMULATION ACCOUNTS FOR MINORS   (a) Income accumulations : When property is left in trust for minors, the income earned for the period will be divided equally or according t

Q. What do you mean by depreciation? What are the causes for depreciation? Explain the two methods of depreciation. Depreciation means a fall in the quality, quantity or value o

Ask questSarah is the sole distributor agent in her area for Holmes Kitchen Tiles. Sarah purchases the titles at a trade discount and annually in May receives an agency commission