All the references are from John Hull’s book (Risk Management and financial Institutions 4th edition) In Table 2.2 in text, suppose that suppose that DLC’s income before tax is normally distributed with mean 0.5 and standard deviation 2.5 The tax rate is 30%. What is the probability that DLC’s equity will be wiped out in one year? Problem 3.19 in text. Use Excel in conjunction with the Solver tool. You should include a table demonstrating why your answer is correct. An investor divides his money between hedge funds that earn (before fees) -20%, -5%, +10%, +20%, +25%, and +30%. All hedge funds charge 2 plus 20%. What is the overall return on the investments? How is it divided between the hedge fund and the investor? How does your answer change if a fund of funds charging 1 plus 5% is used. (Assume that the fund of fund incentive fee applies to the net (after fees) profits from the hedge funds.) How does Table 6.1 in text change if the principal assigned to the senior, mezzanine, and equity tranche in Figure 6.4 are 80%, 15%, and 5% for the ABS and 70%, 25% and 5% for the ABS CDO? Give results for the situations where the losses to the subprime portfolio are 6%, 8%, 10%, and 12%. Problem 18.18 in text. Apply EWMA and GARCH (1,1) to the data on the euro-USD exchange rate that is on the portal The probability that a certain loss will be greater than $10 million is 3%. What does the power law give for the 99% VaR as a function of the a parameter. Problem 11.17 in text A bank has a $50 million portfolio of loans. The probability of each loan defaulting in a year is 2%, the recovery rate averages 60%. Show how the one-year 99.5% VaR varies with the copula correlation. (Provide a table showing the VaR for copulas correlations of 0, 0.1, 0.2…0.9.) Problem 12.13 in text

 

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