7 demonstrate sensitivity and scenario analyses and explain monte carlo simulation 85863

Name: 7 demonstrate sensitivity and scenario analyses and explain monte carlo simulation 85863
Uploaded: 2022-01-23T05:24:21-08:00
Duration: 5 min 20 s
Channel: Umar Sohail Qureshi
Description: 7 demonstrate sensitivity and scenario analyses and explain monte carlo simulation 85863

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Write a minimum of 250 words for each of the discussion questions below. 1. Explain how Monte Carlo simulation is used by enterprises in the real world. Provide a specific example from your own line of work, or a line of work that you find particularly interesting. Remember that any proper explanation of a Monte Carlo simulation would involve describing the probability distributions that have been utilized in that simulation. 2. Identify the parts or aspects of Monte Carlo simulation processes that you have found to be particularly challenging. Describe why you believe that they are challenging and provide remedies to simplify those aspects.

Umar Sohail Q.

Question 1 - Monte Carlo simulationa) Succinctly describe two applications of Monte Carlo simulation we covered in this unit. In your answer, demonstrate your own understanding and interpretation instead of listing the steps from the lecture slides. Expected length: maximum 10 sentences.b) The table below lists various positions in stocks and options a trading desk is currently holding: Negative quantities refer to short positions and positive quantities refer to long positions. Each option contract covers 100 shares (meaning, for instance, the 20 contracts listed for the call option on A cover 20x100 = 2000 shares)."Current price" is the price per share (meaning, for instance, the $2.18 price listed for the call option on A is the price of a call on 1 share). "NA" means "not applicable".Assume the risk-free rate for all maturities is 5% per annum (with continuous compounding). Neither stock pays dividend and the options can be treated as European. Returns on Stock A and Stock B have a correlation of 0.45.i) Using the information provided, perform full Monte Carlo simulation to estimate the 10-day 99% VaR (Value-at-Risk) for this portfolio. State assumptions if applicable. Interpret the final result. Note that standard deviation is deliberately left out of the table, instead option prices were provided, which should allow you to extract information on volatility.Provide commentary hereii) Compute the 10-day 99% VaR for the individual components of the portfolio also using full Monte Carlo simulation, using the same random samples.Show that the sum of the individual VaR values is greater than the portfolio VaR computed above. Comment on the result.

Akash M.

explain-monte-carlo-simulation-and-non-normal-assumptions132-show-that-when-approaches-1-the-weighting-scheme-in-section-1331-approaches-the-basic-historical-simulation-approach-133-suppose-98418

Explain Monte Carlo simulation and non-normal assumptions. 13.2 Show that when λ approaches 1, the weighting scheme in Section 13.3.1 approaches the basic historical simulation approach. 13.3 Suppose we estimate the one-day 95% VaR from 1,000 observations (in millions of dollars) as 5. By fitting a standard distribution to the observations, the probability density function of the loss distribution at the 95% point is estimated to be 0.01. What is the standard error of the VaR estimate? 14.3 Suppose that the value of a portfolio increases by $50,000 for each one-basis-point increase in the 12-year rate and has no other sensitivities. The multiple-vertex approach is used to model with the following vertices: 3 months, 6 months, 1 year, 2 years, 3 years, 5 years, 10 years, 15 years, 20 years, and 30 years. What is the sensitivity of the portfolio to a one-basis-point increase in each vertex of the term structure? 14.6 A portfolio has exposure to the two-year interest rate and the five-year interest rate. A one-basis-point increase in the two-year rate causes the value of the portfolio to increase by $10,000. A one-basis-point increase in the five-year rate causes the value of the portfolio to 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 portfolio's expected shortfall when the confidence level is 98% and the time horizon is five days?

Breanna O.

Transcript

00:01 So this question was to describe the simulation procedure using a random number generator to generate 10 integrates between 0 and 1 inclusive and consider 0 to be a male and 1 to be female.

00:16 So the question is the probability of randomly selecting an adult who recognizes the brand name of mcdonald's is 0 .95.

00:27 So the probability is 0 .95.

00:34 Keep that in mind.

00:36 And then describe a procedure for using software or ci 83, the right about 84 plus calculator to simulate the random selection of 50 adults.

00:52 So we're going to use calculators to simulate the procedure for you.

00:56 We're going to use calculator to simulate the random selection or 50 adults consumers.

01:06 Consumers...

Question

7. Demonstrate sensitivity and scenario analyses and explain Monte Carlo simulation.

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