Advances in Risk Management

56 SENSITIVITY ANALYSIS OF PORTFOLIO VOLATILITY SA={a 1 A,a 2 A,...,akA} andSB={a 1 B,a 2 B,...,amB}, withkAandmBlower than nbe ...

EMANUELE BORGONOVO AND MARCO PERCOCO 57 Table 3.1Composition of the Dow Jones Industrial Average Index Stock Sector Alcoa In. Ma ...

58 SENSITIVITY ANALYSIS OF PORTFOLIO VOLATILITY 1992
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2 0 2 4 6 Portfolio returns 1993 1994 1995 1996 1997 199 ...

EMANUELE BORGONOVO AND MARCO PERCOCO 59 1992 0 1 2 3 4 5 5 7 8 1993 1994 1995 1996 1997 Portfolio volatility 1998 1999 2000 2001 ...

60 SENSITIVITY ANALYSIS OF PORTFOLIO VOLATILITY Table 3.2 DIMs for different strategies Stock Uniform changes Proportional chang ...

61 Alooa In. American Express Co. AT&T Corp. Boeing Co. Catepillar Inc. Citigroup Inc. Coca-Cola Co. Walt Disney Co. E.I. Du ...

62 SENSITIVITY ANALYSIS OF PORTFOLIO VOLATILITY Table 3.3 Rankings of stocks according to the DIM Rank Uniform changes Proportio ...

EMANUELE BORGONOVO AND MARCO PERCOCO 63 Table 3.4DIMs by sector and strategy Sector Strategy Uniform change Proportional change ...

64 SENSITIVITY ANALYSIS OF PORTFOLIO VOLATILITY The additive property of theDis then useful in calibrating TRS aim- ing at diver ...

EMANUELE BORGONOVO AND MARCO PERCOCO 65 SA based on partial derivatives (PD) or elasticity (E) leads to limitations in testing: ...

66 SENSITIVITY ANALYSIS OF PORTFOLIO VOLATILITY the most influential in a proportional strategy. In the optimal strategy, most o ...

EMANUELE BORGONOVO AND MARCO PERCOCO 67 The discussion of the relationship between DIM and the Fussel–Vesely importance can be ...

68 SENSITIVITY ANALYSIS OF PORTFOLIO VOLATILITY Duan, J.-C. (1995) “The GARCH Option Pricing Model”,Mathematical Finance, 5: 13– ...

CHAPTER 4 Managing Interest Rate Risk under Non-Parallel Changes: An Application of a Two-Factor Model Manuel Moreno 4.1 INTRODU ...

70 MANAGING INTEREST RATE RISK UNDER NON-PARALLEL CHANGES These measures do not depart from a continuous-time model for interest ...

MANUEL MORENO 71 The solution of this equation, subject to the terminal condition given by the payment to be received by the bon ...

72 MANAGING INTEREST RATE RISK UNDER NON-PARALLEL CHANGES A 1 (τ)=exp ( − σ^21 4 q 1 B^2 (τ)+s∗ ( B(τ)−τ ) ) A 2 (τ)=exp ( − σ^2 ...

MANUEL MORENO 73 Since this bond can be interpreted as a portfolio ofndiscount bonds, we get: P∗(t,T)= ∑n i= 1 ciP(t,ti) (4.14) ...

74 MANAGING INTEREST RATE RISK UNDER NON-PARALLEL CHANGES Hence,B(τ) andC(τ) indicate the sensitivity of a zero-coupon bond to c ...

MANUEL MORENO 75 standard normal variable, and h= ln (P(t,Tb))−ln (KP(t,Tc)) σP ̃ − 1 2 σP ̃, σP^2 ̃=Var(ln (P ̃)),P ̃=P(Tc,Tb) ...