cityboy

yodhava Wrote:
-------------------------------------------------------
> Paraguay Wrote:
> --------------------------------------------------
> -----
> > yodhava Wrote:
> >
> --------------------------------------------------
>
> > -----
> > > They could have added one more bit of
> > complexity
> > > to the problem by adding
> > >
> > > - the UK bond returns and risk measures are
> in
> > > "local currency".
> > > - and they give you the correlation between
> the
> > UK
> > > asset returns with the exchange rate (0.3)
> and
> > > return on the US/UK exchange rate (-1.5%)
> > >
> > > nice practice example, thx
> >
> >
> > It would be the standard deviation of exchange
> > rates, not the return correct?
>
> Yeah Paraguay, they would also need to give you
> the standard deviation of exchange rate return
> over that period.
> But you also need the exchange rate return so that
> you can calc the UK bonds return in US currency.
>
> UK Bond Return (in usd) = UK Bond return (local)
> + s ( USD/UK return)
>
> UK Bond Risk (in usd) = SQRT ( UK Bond local ^2
> + s^2 + 2*UK-L*s*Corr(UK-L,s) )
>
> Right?


Yeah you would need all of them. This test is not passable.