valuation methodology of click funds assignment
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8/8/2019 Valuation Methodology of Click Funds Assignment
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Valuation methodologyof the Robeco EUROSTOXX 50 Garant Fund
Okt. 01/08
By Sotirios Kourdoupalos (group 5)
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Outline
Data
Valuation methodology
VaR methodology
Valuation results
VaR results
Conclusions
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Data group 5
DJ EURO STOXX 50 spot price
01/01/2001 until 16/02/2007
EURIBOR rates01/01/2001 until 16/02/2007. Interpolation when necessary
Index Futures December 2001, March 2007
Options December 2001 K=3300, March 2007 K=4200
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Valuation methodology group 5
Being careful for garbage in ± garbage out
Estimation of implied dividend yield
Problem: The implied dividend yield on 22/10/2001 is reallysmall compare to the dividend yield from Datastream.Something is wrong
Hint: The starting level of the fund index is the average of 22-25 October 2001
Solution: The dividend on 25 October is used when thefutures contract is more liquid
T
S F
r qt t
t t
)/ln(
!
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Valuation methodology group 5
Estimation of implied volatility
Calculated from the Black-Scholes formulas on 25/10/2001
by using the implied dividend yield
Question: Why implied and not historical volatility?
Implied is forward looking
Confrontation of our estimates with Datastream's
q
Ours 0,0179 0,3799
Datastream 0,0239 0,3779
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Valuation methodology group 5
R eplicating portfolio structure
A zero coupon bond with par value equal to theguaranteed floor.
A European call on the DJ EURO STOXX 50, with strikeprice the starting index level.
The selection of up-and-in puts and their properties will bediscussed later, as there are 4 discussion points on thisissue from three other groups.
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Histor ical VaR group 5
R ecognizing the market variables
VaR measures market risk and... Market risk arises frommovements in the level or volatility of market prices
(Jorion 2001)
Candidates: index prices, interest rates and volatility
Historical or implied volatility?
The latter is affected by temporary market conditions
Volatility is missing from our paper
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Histor ical VaR group 5
Dealing with the short position on the product
The short position on the options has the opposite signfrom the long position
Problem: What is the short position on the bond?
Solution: We assume the bond is sold and replaced byand equal amount with the bond value of cash.
Difference between the short and the long: This amount isno more affected by market variable changes
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Histor ical VaR group 5
U sing bins
Sorting observations in bins affected our VaR estimation.
These are the differences from sorting in bins and simple
sorting (in parentheses).
Long Short
1% VaR 5% VaR 1% VaR 5% VaR1 day 2.83
(3.23)
2.03
(2.03)
2.04
(2.06)
1.49
(1.44)
10 days 9.13
(10.21)
6.42
(6.42)
6.46
(6.52)
4.70
(4.56)
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Analytical VaR group 5
C alculating Delta-gamma VaR
Bond VaR:
Total Options VaR:
Total VaR:
R: correlation matrix
22225.0 W W E S S V
O +(!
RVxV xVaR ''!
? A )()1/(1 y y B DV y B EW !
? AO B W W x ! ¼½
»¬-
«!
OO
B B
W V
W V V
/0
0/
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Valuation r esults group 5
It is rather strange that the replicating portfolio value is
much higher than the fund value
October 25, 2001 February 16, 2007
Zero coupon bond 37,78 46,65
Call option 19,08 11,87
Management costs 3,10 3,10
UIP(54;55) 11,63 3,1
UIP(58;60) 10,64 1,8
UIP(62;65) 9,76 0,90
UIP(66;70) 8,99 0,39
UIP(70;75) 8,30 0,15
UIP(50;55) -9,99 -1,61
UIP(54;60) -9, 0 -0,84
UIP(58;65) -8,49 -0,37
UIP(62;70) -7,86 -0,14UIP(66;75) -7,30 -0,05
Sum 66,43 64,99
Options 5,55 15, 3
Share of options in fund 38% 3%
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Delta gamma r esults group 5
Correlation -0,8 -0,3643 0 0,3643 0,8
1- a 5% Va 6,842 7,463 7,945 8,399 8,912
1 - a 5%Va 21,451 23,547 25,167 26,687 28,4
1- a 1% Va 9,691 1 ,57 11,253 11,896 12,623
1 - a 1% Va 3 ,383 33,353 35,646 37,8 4 ,226