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Need help with VaR!!!

I need some help! :sos: I am not sure how to apply the equation in the following example:

Assume a company will issue $1 billion in 10-year debt in 6 months
- Each basis point (0.01%) change in rates will raise borrowing costs by $800,000 per $1 billion issuance

- How much could borrowing costs rise over six months?

= 10 yr yield x sqrt(time) x Z score x volatility
5.00% x sqrt(0.5) x 1.645 x 17.65% = 103 bps

What is this 10 yr yield? Is it a forward rate, or the current one? Is the
volatility for 0.5 year? Any ideas?

Thank you!
 
Are you guessing? Have you ever seen this equation?

I would say that VaR would be z*StDev. Is there any problem with this approach?
 
I would say that VaR would be z*StDev.

the VaR calculation looks right.

In the case that the company in question does not yet have publicly-traded papers, you would use the 10-yr YTM from a similarly-rated company* bond as proxy.
* same industry
 
Are you guessing? Have you ever seen this equation?

I would say that VaR would be z*StDev. Is there any problem with this approach?

Z = (x - u)/s

so Z*stdev = (x - u), right?

haven't thought this through thoroughly but that just jumped out at me.

i think others were right when they recommended to use a same industry, simlarly rated company's paper as a proxy for the yield...

... but then wouldn't you have to use the mean and st.dev from that paper's yield changes?

Barron
 
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