Chapter 22: Scenario Analysis and Stress Testing
22.10. (Spreadsheet Provided)
What difference does it make to the worst-case scenario in Example 22.1 if (a) the options are
American rather than European and (b) the options are barrier options that are knocked out if
the asset price reaches $65? Use the DerivaGem Applications Builder in conjunction with Solver
to search over asset prices between $40 and $60 and volatilities between 18% and 30%
22.11.
What difference does it make to the VaR calculated in Example 22.2 if the exponentially weighted
moving average model is used to assign weights to scenarios as described in Section 13.3?
The weights for the historical scenarios in Table 13.5 must be multiplied by 0.99. This leads to
Scenario Loss ($000s) Probability Cumul. Probability
s5 850.000 0.00050 0.00050
s4 750.000 0.00050 0.00100
h494 499.395 0.00523 0.00623
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