Risk Metric calculation

almatres

New Member
Ok, here is my question:
In my department we calculate a risk metric R and the process is the following:
  • We divide the company portfolio into maturity buckets
  • We calculate the Gap (asset-liab) for each bucket
  • We multiply each GaP for the RISKFACTOR
RISK FACTOR=((1/ (1+Zero rate i) ^ (Average term i)/360) – (1/(1+Zero rate i + s) ^ (Average term i /360)))
  • We sum the results for each bucket and that’s our R calculation.

To calculate the RISK FACTOR we are using an annualized Zero rate but a daily volatility (s), is this making any sense?? Shouldn’t be annualized the volatility?

any help?
 

IntoDarkness

Active Member
looks like the risk factor tries to capture the one-day change of your zero rate and its impact on discount factor. so it's a daily vol.
 
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