Scribd Logo
Upload

Welcome to Scribd!

  • 85 views

    Formula Sheet FIM

    Uploaded by

    Y
    This document contains formulas for bond valuation, share valuation, maturity modeling, duration, measuring price sensitivity with duration, duration and convexity, interest rate risk modeling, loan pricing, credit risk modeling, foreign exchange risk measurement, earnings at risk calculation, value at risk calculation, liquidity measurement, and interest rate and foreign exchange hedging with futures contracts. Key concepts covered include duration, convexity, earnings at risk, value at risk, basis risk, and hedging strategies.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    Formula Sheet FIM

    Uploaded by

    Y
    85 views4 pages
    This document contains formulas for bond valuation, share valuation, maturity modeling, duration, measuring price sensitivity with duration, duration and convexity, interest rate risk modeling, loan pricing, credit risk modeling, foreign exchange risk measurement, earnings at risk calculation, value at risk calculation, liquidity measurement, and interest rate and foreign exchange hedging with futures contracts. Key concepts covered include duration, convexity, earnings at risk, value at risk, basis risk, and hedging strategies.

    Original Description:

    Good sample

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    This document contains formulas for bond valuation, share valuation, maturity modeling, duration, measuring price sensitivity with duration, duration and convexity, interest rate risk modeling, loan pricing, credit risk modeling, foreign exchange risk measurement, earnings at risk calculation, value at risk calculation, liquidity measurement, and interest rate and foreign exchange hedging with futures contracts. Key concepts covered include duration, convexity, earnings at risk, value at risk, basis risk, and hedging strategies.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    85 views4 pages

    Formula Sheet FIM

    Uploaded by

    Y
    This document contains formulas for bond valuation, share valuation, maturity modeling, duration, measuring price sensitivity with duration, duration and convexity, interest rate risk modeling, loan pricing, credit risk modeling, foreign exchange risk measurement, earnings at risk calculation, value at risk calculation, liquidity measurement, and interest rate and foreign exchange hedging with futures contracts. Key concepts covered include duration, convexity, earnings at risk, value at risk, basis risk, and hedging strategies.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 4

    Formula Sheet

    Bond Valuation
    n
    Ct
    FV
    P0

    t
    (1 R) n
    t 1 (1 R)
    Share Valuation
    P0

    D1
    D2
    D

    ...
    2
    (1 k ) (1 k )
    (1 k )

    D0 ( 1 g )
    (k g )

    P0

    Maturity Model with a portfolio of assets and liabilities

    Mi Wi1M i1 Wi 2 M i 2 ... Win M in


    Duration
    N

    CFt DFt t

    t 1
    N

    CFt DFt

    t 1

    PVt

    t 1
    N

    PVt

    t 1

    Measuring price sensitivity with duration :

    P
    R
    D

    P
    1 R

    R
    R
    E DA A
    DL L

    (1 R)
    (1 R)

    If the level of interest and expected shock to interest rates are the same for both assets and
    liabilities, then:
    R
    E DA DL k A
    (1 R)
    Duration and Convexity
    P
    R
    1
    D
    CX (R) 2
    P
    (1 R) 2
    Repricing Model on interest rate risk :
    NIIi = (GAPi)Ri = (RSAi-RSLi) Ri

    Simple promised return on loan :


    Loan rate = Base Rate + Credit risk premium or margin
    Contractually Promised return on loan :
    1+k = 1 + [f + (BR+m)] / [1- b(1-R)]
    Expected return on loan : E(r) = p(1+k).
    Term Structure Derivation of Credit Risk:
    p (1+ k) = 1+ i
    or
    [(1 - p) (1 + k)] + [p(1 + k)] = 1 + i
    K I = = (1 + i) / ( + p p) (1 + i)
    RAROC = one year income on a loan / loan (asset) at risk or capital at risk
    Loan (asset) at risk or capital at risk = DLN = -DLN x LN x (DR/(1+R))
    Credit Metrics : VARone day = P 1.65 std dev
    CreditRisk+ Model :
    Probabilit y of n defaults

    e -m m n
    n!

    Concentration Limits for a Loan Portfolio:

    Concentration limit Maximum loss as a percentage of capital

    1
    Loss rate

    KMV Portfolio Manager Model :


    Expected return on a loan to borrower i Ri AISi - ELi AISi - EDFi LGDi
    Risk of a loan to borrower i (i):

    i ULi Di LGDi EDFi 1 EDFi LGDi


    Net FX exposure of an FI:= (FX assetsi FX liabilitiesi) + (FX boughti FX soldi)
    = Net foreign assetsi + Net FX boughti

    Promised return on a loan commitment :


    (f1+ f2(1-dd)+ (BR+m) dd) )/ (dd- [b(dd)(1-RR)] )
    Daily earnings at risk (DEAR) = Dollar market value of the position Price sensitivity x
    Potential adverse move in yield , or
    Daily earnings at risk (DEAR) = Dollar market value of the position Price volatility
    Market value at risk (VAR) = DEAR N

    DEAR for Foreign Exchange :


    DEAR = dollar value of position FX volatility
    Dollar equivalent value of position = FX position spot exchange rate
    DEAR for Equities
    DEAR = dollar value of position stock market return volatility
    market return volatility = 1.65 std devM.
    DEAR portfolio =[DEARa2 + DEARb2 + DEARc2 + 2rab DEARa * DEARb + 2rac DEARa
    DEARc + 2rbc DEARb DEARc]1/2

    Liquidity Index :

    N
    P
    I Wi i*
    i 1
    Pi

    Hedging Interest Rate Risk with Futures Contracts :


    F = dollar gain or loss on a futures position for changing interest rates
    R
    F DF F
    1 R
    Number of sold or bought contracts (NF) :
    No basis risk N F

    DA kDL A
    DF PF

    Adjusting for basis risk:

    NF

    Where:
    b = [RF/(1+RF)] / [R/(1+R)

    DA kDL A
    DF PF b

    Hedging Foreign Exchange Risk with Futures Contracts :


    h = St /ft
    Nf = (Long FX asset position )/(size of one FX contract).
    = estimated value of h using past data.

    You might also like