DefaultRiskyBondVaR function

VaR for default risky bond portfolio

Generates Monte Carlo VaR for default risky bond portfolio in Chapter 6.4

DefaultRiskyBondVaR(r, rf, coupon, sigma, amount.invested, recovery.rate, p,
  number.trials, hp, cl)

Arguments

• r: Spot (interest) rate, assumed to be flat
• rf: Risk-free rate
• coupon: Coupon rate
• sigma: Variance
• amount.invested: Amount Invested
• recovery.rate: Recovery rate
• p: Probability of default
• number.trials: Number of trials
• hp: Holding period
• cl: Confidence level

Returns

Monte Carlo VaR

Examples

 for given parameters
   DefaultRiskyBondVaR(.01, .01, .1, .01, 1, .1, .2, 100, 100, .95)

Author(s)

Dinesh Acharya

References

Dowd, K. Measuring Market Risk, Wiley, 2007.