A portfolio has exposure to the two-year interest rate the five-year interest rate. A one-basis-point...
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A portfolio has exposure to the two-year interest rate the five-year interest rate. A one-basis-point increase in the two-year rate causes the value of the portfolio increase in value by $10,000. A onebasis- point increase in the five-year rate causes the value of the portfolio decrease by $8,000. The standard deviation per day of the two-year rate and that of the five-year rate are 7 and 8 basis points, respectively, and the correlation between the two rates is 0.8. What is the portfolios expected shortfall when the confidence level is 98% and the time horizon is five days?
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