I have created an Excel spreadsheet specifically designed to assist you in solving any question related to Risk Management. This spreadsheet is user-friendly and can be easily customized to meet your specific requirements. Its simplicity ensures that you can navigate and utilize it effectively.
long put
Strike Price 72
Premium 3
Terminal price 40 50 60
Payoff = Max (K-S, 0 ) 32 22 12
Profit/(loss) = -P + max (K-S, 0) 29 19 9
short put
Strike Price 60
Premium 2
Terminal price 40 50 60
Payoff = Max (K-S, 0 ) 32 22 12
Profit/(loss) = -P + max (S-K, 0) 29 19 9
Swaps, Bonds and Credit risk
Unconditional probability of default (PD = Cumulative unconditional PD up to the end of ye
= 0.00477
CDt 1.36%
CDt-1 0.88%
probability of default
, 0.004812494
Calculation of CDS Payoff on Default
Payoff = (1 - Recovery Rate) x Notional Principal - Premiums Paid
Payoff 179700000
Recovery Rate 40.00 Premium Paid = Notional P
Notional Principal 300000000 CDS premium payment = C
Premiums paid 300000 Net payoff = (1 - recovery r
CDS Spread 60.00 Recovery rate = market pri
Time to Maturity 2
Expected loss 120
PD is the probability of default
LGD is the loss given default 0.7
Recovery Rate 30%
Expected loss % = PD x LGD 0
PD = Expected loss / (1 - LGD) 1.714285714
LGD is the loss given default 70%
Period 5
Cumilative PD 8.571428571
Cumilative P D 0
BOND PRICE
Period 4 Time
YTM 9.75% 1
Coupon rate 8.50% 2
Bond Price 100 3
4
Bond Price 87.17948718 96.01613
0.310741891
68.92581092
Liquidity Risk
Calculating the Cost of Liquidation Todays Price
Bid 25.67
Offer 25.75
µ is the mean bid-offer spread 25.71
σ is the standard deviation of the bid-offer spread 0.00624
Mean spread 0.08
α is the number of shares held 200000
s = (offer-bid)/mid 0.00311163
Cost of liquidation = ½ x (µ + λ σ) x α 8000
Total Cost of Liquidation
Bid 22.6
Offer 22.8
µ is the mean bid-offer spread 22.7
σ is the standard deviation of the bid-offer spread 0.5
λ is the confidence level 0.2
, α is the number of shares held 150000
s = (offer-bid)/mid 0.008810573
Cost of liquidation = ½ x (µ + λ σ) x α 15000
Cost of Liquidation at Stressed Market
Cost of Liquidation in Stressed MArket= (µ + (λ * σ)) / 2 * α 9453.92 N 10
mean bid-offer spread 25.71 N day Var 29895.92
σ is the standard deviation of the bid-offer spread 0.000242707
µ mean 0.00311163
λ is the confidence level 2.33
α iValue of Shares 5142000
Total cost of Liquidation
Cost of Liquidation in Stressed MArket= (µ + (λ * σ)) / 2 * α 102375
mean bid-offer spread 22.7
σ is the standard deviation of the bid-offer spread 0.022026432
µ mean 0.008810573
λ is the confidence level 2.33
α iValue of Shares 3405000
Short Put P/L
29
70 80 19
2 0 9
-1 -3
40 50 60
Terminal price
Profit/(loss) = -P + max (S-K, 0)
onal PD up to the end of year 4
- Cumulative unconditional PD up to the end of year 3
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