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Risk and Return: (Background Information)
Risk and Return: (Background Information)
(background Information)
Outline
Rates and yields
Risk measures
Variance/covariance matrix
VaR, Expected shortfall
Modified duration and convexity
Calculating returns
Risk measures
Risk measures
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Risk measures
Value-at-Risk and Expeceted short fall
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Risk measures
Assuming normality we can write the VaR as:
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Risk measures
Modified duration and convexity
Bonds:
5Y, 3%
5Y, 15%
10Y, 3%
10Y,15%
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Risk measures
Taylor series expansion of the bond price
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Calculating Returns
The return on equity can be broken down into the
following components
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Calculating Returns
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Calculating Returns
Taking into account
The passage of time
The change in price due to interest rate changes
The coupon
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