Computation of portfolio VAR The provided yields data file (yields.xls) contains 5-year yields from 1953 to 1994. Using this information and the

Computation of portfolio VAR

The provided yields data file (yields.xls) contains 5-year yields from 1953 to 1994. Using this information and the duration approximation, compute the portfolio VAR as of December 1994. Risk should be measured over a month at the 95% level. Report the distribution and compute the VAR:

· using a normal distribution for yield changes (Delta-Normal method) and a 12-month moving average model for the volatility of yield changes

· using the actual distribution for yield changes (Historical-Simulation method using all the available past data)

· Compare and discuss the differences between the VAR obtained using the two methods

Hint: Consider yield changes as if they were log-returns

Module7-Yields.xls

YIELDS

Date	5-Year Yield
12/1952	2.35
12/1952	2.42
12/1952	2.45
12/1952	2.53
12/1952	2.77
12/1952	3.07
12/1952	2.79
12/1952	2.72
12/1952	2.79
12/1952	2.41
12/1952	2.37
12/1952	2.38
12/1952	2.18
12/1952	1.87
12/1952	1.57
12/1952	1.53
12/1952	1.42
12/1952	1.73
12/1952	1.31
12/1952	1.38
12/1952	1.38
12/1952	1.52
12/1952	1.61
12/1952	1.68
12/1952	1.72
12/1952	2.27
12/1952	2.4
12/1952	2.4
12/1952	2.42
12/1952	2.46
12/1952	2.57
01/1953	2.76
01/1953	2.8
01/1953	2.67
01/1953	2.57
01/1953	2.73
01/1953	2.8
01/1953	2.71
01/1953	2.75
01/1953	3
01/1953	3.05
01/1953	2.87
01/1953	2.92
01/1953	3.17
01/1953	3.46
01/1953	3.31
01/1953	3.42
01/1953	3.59
01/1953	3.63
01/1953	3.26
01/1953	3.33
01/1953	3.34
01/1953	3.57
01/1953	3.66
01/1953	3.9
01/1953	3.99
01/1953	3.85
01/1953	3.9
01/1953	3.88
01/1953	3.2
01/1953	2.84
01/1953	2.82
02/1953	2.59
02/1953	2.53
02/1953	2.46
02/1953	2.38
02/1953	2.5
02/1953	2.81
02/1953	3.65
02/1953	3.76
02/1953	3.82
02/1953	3.59
02/1953	3.81
02/1953	3.95
02/1953	3.78
02/1953	3.93
02/1953	4.13
02/1953	4.2
02/1953	4.47
02/1953	4.48
02/1953	4.77
02/1953	4.82
02/1953	4.48
02/1953	4.82
02/1953	4.98
02/1953	4.71
02/1953	4.64
02/1953	4.09
02/1953	4.31
02/1953	4.32
03/1953	3.9
03/1953	3.34
03/1953	3.43
03/1953	3.43
03/1953	3.46
03/1953	3.77
03/1953	3.31
03/1953	3.63
03/1953	3.5
03/1953	3.48
03/1953	3.42
03/1953	3.55
03/1953	3.68
03/1953	3.73
03/1953	3.76
03/1953	3.65
03/1953	3.69
03/1953	3.81
03/1953	3.84
03/1953	4.02
03/1953	3.77
03/1953	3.66
03/1953	3.67
03/1953	3.63
03/1953	3.75
03/1953	3.84
03/1953	3.65
03/1953	3.66
03/1953	3.62
03/1953	3.55
03/1953	3.5
04/1953	3.68
04/1953	3.7
04/1953	3.7
04/1953	3.71
04/1953	3.74
04/1953	3.78
04/1953	3.85
04/1953	3.88
04/1953	3.92
04/1953	3.98
04/1953	3.96
04/1953	4.04
04/1953	4.02
04/1953	4.07
04/1953	4.11
04/1953	4.11
04/1953	3.99
04/1953	3.99
04/1953	4.01
04/1953	4.02
04/1953	3.99
04/1953	3.99
04/1953	4.09
04/1953	4.03
04/1953	4.13
04/1953	4.16
04/1953	4.14
04/1953	4.16
04/1953	4.15
04/1953	4.13
05/1953	4.16
05/1953	4.2
05/1953	4.29
05/1953	4.37
05/1953	4.44
05/1953	4.9
05/1953	4.82
05/1953	5.07
05/1953	4.77
05/1953	4.89
05/1953	4.96
05/1953	5.1
05/1953	5.25
05/1953	5.65
05/1953	5.26
05/1953	5.19
05/1953	5.22
05/1953	4.79
05/1953	4.59
05/1953	4.7
05/1953	4.37
05/1953	4.66
05/1953	4.65
05/1953	5.3
05/1953	5.08
05/1953	5.28
05/1953	5.37
05/1953	5.62
05/1953	5.66
05/1953	5.77
05/1953	5.48
06/1953	5.49
06/1953	5.63
06/1953	5.77
06/1953	5.74
06/1953	5.47
06/1953	5.18
06/1953	5.23
06/1953	5.2
06/1953	5.28
06/1953	5.41
06/1953	5.96
06/1953	6.37
06/1953	6.51
06/1953	6.4
06/1953	6.36
06/1953	6.66
06/1953	6.99
06/1953	6.93
06/1953	7.11
06/1953	7.99
06/1953	7.35
06/1953	7.61
06/1953	8.29
06/1953	8.2
06/1953	7.3
06/1953	7.24
06/1953	7.9
06/1953	7.78
06/1953	7.8
06/1953	7.57
07/1953	7.43
07/1953	7.07
07/1953	6.97
07/1953	5.91
07/1953	5.9
07/1953	5.7
07/1953	5.26
07/1953	4.93
07/1953	5.85
07/1953	5.93
07/1953	6.56
07/1953	6.63
07/1953	5.85
07/1953	5.91
07/1953	5.45
07/1953	5.43
07/1953	5.25
07/1953	5.56
07/1953	5.63
07/1953	5.7
07/1953	5.77
07/1953	5.86
07/1953	5.87
07/1953	5.95
07/1953	6.04
07/1953	6.13
07/1953	6.23
07/1953	6.25
07/1953	5.85
07/1953	6.41
07/1953	6.71
08/1953	6.73
08/1953	6.71
08/1953	6.71
08/1953	6.86
08/1953	7.76
08/1953	7.25
08/1953	6.74
08/1953	6.77
08/1953	6.74
08/1953	6.79
08/1953	6.87
08/1953	6.91
08/1953	7.51
08/1953	8.01
08/1953	7.86
08/1953	8.22
08/1953	8.38
08/1953	8.57
08/1953	7.97
08/1953	7.87
08/1953	7.43
08/1953	7.12
08/1953	7.3
08/1953	7.09
08/1953	7.37
08/1953	7.98
08/1953	7.49
08/1953	7.58
08/1953	7.82
08/1953	8
08/1953	8.15
09/1953	7.36
09/1953	7.54
09/1953	7.19
09/1953	7.43
09/1953	7.36
09/1953	7.33
09/1953	7.19
09/1953	7.71
09/1953	7.47
09/1953	7.32
09/1953	6.97
09/1953	6.92
09/1953	6.67
09/1953	5.94
09/1953	6
09/1953	6.73
09/1953	6.73
09/1953	6.73
09/1953	6.74
09/1953	6.74
09/1953	6.62
09/1953	6.75
09/1953	6.89
09/1953	7
09/1953	7.33
09/1953	7.27
09/1953	7.51
09/1953	7.73
09/1953	7.84
09/1953	7.91
10/1953	8
10/1953	8.2
10/1953	8.43
10/1953	8.36
10/1953	8.33
10/1953	8.35
10/1953	8.87
10/1953	8.82
10/1953	8.83
10/1953	8.95
10/1953	9.28
10/1953	9.18
10/1953	9.29
10/1953	8.99
10/1953	8.64
10/1953	8.87
10/1953	9.33
10/1953	9.51
10/1953	11.12
10/1953	10.33
10/1953	10.33
10/1953	10.93
10/1953	12.94
10/1953	12.85
10/1953	10.09
10/1953	9.03
10/1953	9.44
10/1953	9.96
10/1953	11.33
10/1953	11.71
10/1953	12.44
11/1953	12.64
11/1953	12.45
11/1953	12.75
11/1953	13.71
11/1953	13.28
11/1953	14.27
11/1953	13.85
11/1953	14.04
11/1953	15.33
11/1953	16.36
11/1953	16.25
11/1953	14.72
11/1953	13.11
11/1953	13.96
11/1953	13.97
11/1953	13.85
11/1953	14.06
11/1953	13.55
11/1953	13.43
11/1953	14.17
11/1953	13.15
11/1953	12.09
11/1953	11.44
11/1953	10.18
11/1953	10.2
11/1953	9.9
11/1953	10.57
11/1953	10.1
11/1953	10.48
11/1953	9.97
12/1953	10.59
12/1953	10.8
12/1953	11.68
12/1953	11.75
12/1953	11.08
12/1953	11.31
12/1953	11.27
12/1953	11.41
12/1953	11.37
12/1953	11.81
12/1953	12.19
12/1953	12.51
12/1953	13.63
12/1953	13.65
12/1953	12.74
12/1953	12.76
12/1953	12.42
12/1953	11.54
12/1953	11.21
12/1953	11.04
12/1953	10.81
12/1953	11.52
12/1953	11.31
12/1953	10.84
12/1953	9.74
12/1953	9.63
12/1953	10.02
12/1953	9.82
12/1953	9.73
12/1953	9.49
12/1953	9.11
01/1954	8.55
01/1954	8.7
01/1954	8.15
01/1954	7.43
01/1954	7.37
01/1954	8.16
01/1954	7.56
01/1954	7.28
01/1954	6.68
01/1954	7.18
01/1954	6.87
01/1954	6.69
01/1954	6.85
01/1954	6.85
01/1954	6.83
01/1954	7.08
01/1954	7.93
01/1954	8.21
01/1954	8.06
01/1954	8.18
01/1954	8.49
01/1954	9.12
01/1954	8.44
01/1954	8.4
01/1954	8.32
01/1954	7.82
01/1954	7.68
01/1954	8.07
01/1954	8.36
01/1954	8.7
01/1954	8.39
02/1954	8.71
02/1954	8.95
02/1954	8.59
02/1954	8.37
02/1954	8.92
02/1954	9.17
02/1954	8.96
02/1954	9.27
02/1954	9.34
02/1954	8.95
02/1954	8.6
02/1954	7.91
02/1954	7.45
02/1954	8.34
02/1954	8.33
02/1954	7.86
02/1954	7.79
02/1954	7.94
02/1954	8.42
02/1954	8.55
02/1954	8.71
02/1954	9.07
02/1954	8.64
02/1954	8.43
02/1954	8.19
02/1954	8.59
02/1954	8.51
02/1954	8.26
03/1954	7.95
03/1954	7.7
03/1954	7.72
03/1954	7.74
03/1954	7.83
03/1954	7.72
03/1954	7.73
03/1954	7.93
03/1954	7.78
03/1954	7.32
03/1954	6.93
03/1954	6.73
03/1954	6.53
03/1954	5.97
03/1954	6.83
03/1954	6.9
03/1954	7.2
03/1954	7.11
03/1954	6.74
03/1954	6.47
03/1954	6.04
03/1954	5.81
03/1954	5.47
03/1954	6.01
03/1954	6.34
03/1954	6.11
03/1954	5.88
03/1954	5.47
03/1954	5.49
03/1954	5.4
03/1954	5.51
04/1954	5.17
04/1954	5.26
04/1954	4.86
04/1954	4.83
04/1954	4.88
04/1954	5.19
04/1954	5.22
04/1954	5.15
04/1954	5.75
04/1954	6.38
04/1954	6.7
04/1954	6.82
04/1954	6.99
04/1954	6.73
04/1954	6.81
04/1954	7.28
04/1954	7.48
04/1954	7.79
04/1954	7.83

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Computation of portfolio VAR The provided yields data file (yields.xls) contains 5-year yields from 1953 to 1994. Using this information and the

YIELDS

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