Explain the commonsense criteria that of a measure of risk
Explain the commonsense criteria that of a measure of risk.
Expert
An ordinary criticism of traditional VaR has been that this does not satisfy all of specific commonsense criteria. Artzner et al. (1997) explained the following set of sensible criteria as a measure of risk, ρ(X) here X is a set of outcomes, must satisfy. These are as follows:
1. Sub-additivity: ρ(X + Y) ≤ ρ(X) + ρ(Y). This just says that when you add two portfolios together the total risk cannot get any worse than adding the two risks independently. Indeed, there may be cancellation outcomes or economies of scale which will make the risk better.
2. Monotonicity: If X ≤ Y for each scenario then ρ(X) ≥ ρ(Y).Portfolio’ risk will be better; if one it has better values than other under all scenarios.
3. Positive homogeneity: For all λ>0, ρ(λX) = λρ(X). Double your portfolio after that you doubles your risk.
4. Translation invariance: For all constant c, ρ(X + c) = ρ(X) − c. Imagine of just adding cash to a portfolio; it would come off your risk.
Risks measure which satisfies all of these termed as coherent.
Your firm have just issued five year floating-rate notes indexed to six-month U.S. dollar LIBOR plus 1/4%. Describe the amount of first coupon payment your firm will pay per U.S. $1,000 of face value, if six-month LIBOR is at present 7.2%?Solution:
What is Static Hedging?
Explain reward versus risk.
What are Capital Market Line and Market Portfolio?
Explain Poisson process in Brownian motion.
How many assumptions are made to find a taxi?
Explain swap broker ? A swap broker arranges a swap among two counterparties for fee without taking a risk position within the swap.
Mr. Ross Perot, a former Presidential candidate of the Reform Party, that is a third political party in the United States, had objected strongly to the creation of the North American Trade Agreement (NAFTA), that nonetheless was inaugurated in the year of 1994
Depict the risks confronting an interest rate & currency swap dealer.An interest rate & currency swap dealer confronts several distinct types of risk. Interest rate risk refers to interest rates altering unfavourably before the swap dea
Give explanation: Trade credit is free credit.
18,76,764
1951664 Asked
3,689
Active Tutors
1460548
Questions Answered
Start Excelling in your courses, Ask an Expert and get answers for your homework and assignments!!