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: 134.6722 Market value is: $10,000,000 * 134.6722/100 = $13,467,220 (in dollars) $13,467 (now in thousands) as output

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

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