‘THE INTERNATIONAL UNIVERSITY ~ VIETNAM NATIONAL UNIVERSITY — HCMC FINAL EXAMINATION Semester 1, 2021-2022 ¢ Date: Jan 20, 2022 ¢ Duration: 120 minutes SUBJECT: Financial Risk Management 1 Department of Mathematics Lecturer Chair: Prof. Pham Huu Anh Ngoc ‘Ta Quoe Bao, PhD INSTRUCTIONS: © Each student is allowed a scientific calculator and a maximum of ONE double-sided sheet of reference material (size Af or similar) marked with their name and ID, and the table of Cumulative Normal Distribution. AU other documents and electronic. devices are forbidden. © Arguments and computations must be detailed so that they are easy to follow. * Please indicate precisely which problem and question you are solving, e.g. Problem 1, question a. Problem 1. (10 pts) An Analyst computes the VaR. for the two positions in her portfolio. The VaR of positions at significant level of 5% are: Val = 2.4 millions($) and VaR = 1.6 millions(8). a) Compute VaR of the portfolio if the returns of two assets are uncorrelated. b) Compute VaR of the portfolio if the returns of two assets are perfectly correlated. Problem 2. (20 pts) A portfolio consists of assets Sy and S2, The daily volatilities are 6% and 14%, respectively. There are $4 millions and $ 2 millions invested in them, respectively. Assume that the returns are normally distributed and they are correlated with a correlation of 0.7. a) Compute one-day VaR of the portfolio at significant level of 5%. b) Compute the incremental VaR for an increase of $ 5000 in asset $, and decrease of $5000 in asset S, at significant level of 5%. ©) How many percent contribution to VaR from asset S; and asset So - please turn over —~Problem 3. (15 pts) Consider a portfolio consisting of two assets Sp and S>, Assume that these assets have volatilities oy = 0.258, 72 = 0.115 and the corrclation of -0.164. The weights on asset 1 and asset 2 are w = 1.5 and w, = —0.5. a) Find risk decomposition MCR,, CR, and PCR, for 0, where i= 1,2 b) If increase w, from 1.5 to 1.6, and decrease w» from -0.5 to -0.6, calculate the change of portfolio’s volatility Ac, Problem 4. (25 pis) Consider a. bond with a 1008 par value paying a 5% conpon annnally for 4 years. The spot rates corresponding to the payment dates arc: ‘Term (years) 1 2 3 4 a) Calculate the price of the bond. b) Determine the yield to maturity for the bond. ©) Calculate the forward rates. Problem 5. (30 pts) Consider the bond M with the information Bond M Maturity 11 years Coupon rate 5% Par value $ 1000 The current yield to maturity is taken to be 12%. a) Calenlate the bond’s price, duration and convexity ) If the yield to maturity increase to 13%, using convexity find the approximation of the relative change in bond priee. END OF QUESTION PAPER-