Questions from Business Statistics

Q: In Example 25.2, what is the tranche spread for

In Example 25.2, what is the tranche spread for the 6% to 9% tranche assuming a tranche correlation of 0.15?

Q: Suppose that a bank has a total of $10 million of

Suppose that a bank has a total of $10 million of exposures of a certain type. The 1-year probability of default averages 1% and the recovery rate averages 40%. The copula correlation parameter is 0.2...

Q: The calculations for the four-index example at the end of

The calculations for the four-index example at the end of Section 23.8 assume that the investments in the DJIA, FTSE 100, CAC 40, and Nikkei 225 are $4 million, $3 million, $1 million, and $2 million,...

Q: Extend Example 24.6 to calculate CVA when default can happen

Extend Example 24.6 to calculate CVA when default can happen in the middle of each month. Assume that the default probability per month during the first year is 0.001667 and the default probability pe...

Q: Calculate DVA in Example 24.6. Assume that default can

Calculate DVA in Example 24.6. Assume that default can happen in the middle of each month. The default probability of the bank is 0.001 per month for the two years and the recovery rate in the event o...

Q: The 1-, 2-, 3-, 4-, and 5-

The 1-, 2-, 3-, 4-, and 5-year CDS spreads are 100, 120, 135, 145, and 152 basis points, respectively. The risk-free rate is 3% for all maturities, the recovery rate is 35%, and payments are quarterly...

Q: Carry out the analysis in Example 26.4 of Section 26

Carry out the analysis in Example 26.4 of Section 26.16 to value the variance swap on the assumption that the life of the swap is 1 month rather than 3 months. //

Q: What is the relationship between a regular call option, a binary

What is the relationship between a regular call option, a binary call option, and a gap call option?

Q: Explain adjustments that have to be made when r = q for

Explain adjustments that have to be made when r = q for (a) the valuation formulas for floating lookback call options in Section 26.11 and (b) the formulas for M1 and M2 in Section 26.13.

Q: Value the variance swap in Example 26.4 of Section 26

Value the variance swap in Example 26.4 of Section 26.16 assuming that the implied volatilities for options with strike prices 800, 850, 900, 950, 1,000, 1,050, 1,100, 1,150, 1,200 are 20%, 20.5%, 21%...