Questions from Business Statistics

Q: Suppose that in Problem 24.1 the spread between the yield

Suppose that in Problem 24.1 the spread between the yield on a 5-year bond issued by the same company and the yield on a similar risk-free bond is 60 basis points. Assume the same recovery rate of 30%...

Q: The most recent estimate of the daily volatility of an asset is

The most recent estimate of the daily volatility of an asset is 1.5% and the price of the asset at the close of trading yesterday was $30.00. The parameter in the EWMA model is 0.94. Suppose that the...

Q: A company uses an EWMA model for forecasting volatility. It decides

A company uses an EWMA model for forecasting volatility. It decides to change the parameter
from 0.95 to 0.85. Explain the likely impact on the forecasts.

Q: The volatility of a certain market variable is 30% per annum

The volatility of a certain market variable is 30% per annum. Calculate a 99% confidence interval for the size of the percentage daily change in the variable.

Q: Should researchers use real-world or risk-neutral default probabilities

Should researchers use real-world or risk-neutral default probabilities for (a) calculating credit value at risk and (b) adjusting the price of a derivative for defaults?

Q: The most recent estimate of the daily volatility of the U.

The most recent estimate of the daily volatility of the U.S. dollar/sterling exchange rate is 0.6% and the exchange rate at 4 p.m. yesterday was 1.5000. The parameter
in the EWMA model is 0.9. Suppo...

Q: Assume that S&P 500 at close of trading yesterday was

Assume that S&P 500 at close of trading yesterday was 1,040 and the daily volatility of the index was estimated as 1% per day at that time. The parameters in a GARCH(1,1) model are
,
,
. If the lev...

Q: How are recovery rates usually defined?

How are recovery rates usually defined?

Q: Explain the difference between an unconditional default probability density and a hazard

Explain the difference between an unconditional default probability density and a hazard rate.

Q: An Excel spreadsheet containing over 900 days of daily data on a

An Excel spreadsheet containing over 900 days of daily data on a number of different exchange rates and stock indices can be downloaded from the author’s website: www-2.rotman.utoronto.ca/hull/data. C...