1. Notes for Final Submission
Use new history files and tradingbook files posted up on site in a .tar file
Solve for the index into the PnL vector given confidence interval (99)
Market Value = Amount * price/100. Total Market Value is sum of individual market values
Hedge Calculation:
We will always use the 2 year treasury as our hedge instrument
For the total risk of a particular maturity bucket we want to know how to hedge that risk so that we are immune to market changes (specifically interest rate changes)
dv01 * Amount = dv01 * Amount
Risk = dv01 * Amount
dv01 * Amount = Risk
Amount = Risk / dv01
Risk is the total risk of the maturity bucket (individual bond risks added up)
dv01 is the sensitivity of the hedge instrument (which we choose as the 2 year treasury)
Refer to : var_example.xls, var_living_spec.xls
Use 6 buckets in your histogram – you will need to determine the bucket width that will dsplay the best. We will have more historical data which will be normally distributed
Market value can be in dollars “invoice price” or in thousands (we standardize on 000’s)
Example:
10,000,000 of a bond - “I own ten million bonds”
9% coupon, 20 years to maturity, price:
Market value is:
$10,000,000 * /100 = $13,467,220 (in dollars)
$13,467 (now in thousands) as output

2. Notes for Final Submission cont…
3 person teams:
Scatter Plot of book PnLs
Calculate “Tail VaR”
Average of 7 largest negative PnLs
Client can enter the confidence interval in a cell and re-calc – e.g. user can now enter 95 instead of pre-set 99

3. Notes for Final Presentation cont…
Name your team
Roles in the team
Client-side language and tool choice
Demo client side
Include entering a spread of 50bp in the 30 year bucket
Shift up and and down
Highlight your use of graphics
Take one question from me
Each team will pick one other team that they think presented the best:
Quality of presentation
Quality of the product