III.A.2.7.3 Mappi ng Zero-Coupon Bonds

[Anonymous]

Hi,
The weighted rate is =r2 x(3-2.75) + r3 x (2.75-2) where r2 is 6% and r3 is 6.5%. My intuition tells me the weight for the r2 should be higher … Can you explain please! Thanks.

[Philip Wong]

III.A.2.7.3 Mappi ng Zero-Coupon Bonds

[Anonymous]

The time period you are trying to interpolate is 2.75 years which is closer to 3 years than to 2 years. So I would expect that the weight for r3 would be higher, which it is. Consider if you were trying to interpolate the rate for a term of 2.99 years – you would expect it to be almost the same as the 3 year rate, in other words the weight on the three year term would be very high, close to 100%. At 2.99 years you are 99% of the way between 2 and 3 so you would expect 99% of the weight would be on the 3 year rate and just 1% on the 2 year rate.

[Anonymous]

This has been driving me crazy for hours.

Firstly, I can’t find the worksheet for the next example in the section. Where they interpolate a 3 month zero bond and a 12 month zero bond to get a 10 month zero bond.

They say they get value < 4.9% I'm getting a value > 4.9% and can’t seem to get the right answer!

How did they interpolate! I did 0.045 * (1 – (10/12)) + 0.05 * (1 – (1 -(10/12))

[Anonymous]

PRM Handbook Excel File Locations

The PRM Handbook also comes with several online spreadsheet references for your use. You can access these spreadsheets at anytime online using the links below, or can download them to your computer for reference even when offline.

II.B.1 http://www.prmia.org/pdf/PRM_Handbook/II.B.1.xls

II.B.4 http://www.prmia.org/pdf/PRM_Handbook/II.B.4.xls

II.B.5 http://www.prmia.org/pdf/PRM_Handbook/II.B.5.xls

II.B.6 http://www.prmia.org/pdf/PRM_Handbook/II.B.6.xls

II.A http://www.prmia.org/pdf/PRM_Handbook/IIA.xls

II.D http://www.prmia.org/pdf/PRM_Handbook/IID.xls

II.E http://www.prmia.org/pdf/PRM_Handbook/IIE.xls

II.F http://www.prmia.org/pdf/PRM_Handbook/IIF.xls

II.G http://www.prmia.org/pdf/PRM_Handbook/IIG.xls

III.A.2.6.2 http://www.prmia.org/pdf/PRM_Handbook/III.A.2.AWHS04.xls

III.A.2.6.2 http://www.prmia.org/pdf/PRM_Handbook/III.A.2.VWHS04.xls

Ex. III.A.2.5 http://www.prmia.org/pdf/PRM_Handbook/III.A.2.VaRMZCB02.xls

Ex. III.A.2.6 http://www.prmia.org/pdf/PRM_Handbook/III.A.2.VaRMCB02.xls

Ex. III.A.2.7 http://www.prmia.org/pdf/PRM_Handbook/III.A.2.VaRMFRN02.xls

Ex. III.A.2.8 http://www.prmia.org/pdf/PRM_Handbook/III.A.2.VaRMVIRS02.xls

III.A.3.1 http://www.prmia.org/pdf/PRM_Handbook/SimpleVaR.xls

Ex. III.A.3.6 http://www.prmia.org/pdf/PRM_Handbook/NMvar.xls

[Anonymous]

=(0.045*(1-0.833333333333333)+0.05*(0.833333333333333-0.25))/(1-0.25)=0.0488888888888889

[Anonymous]

This should be easier to digest: =4.5% + 0.5% *7/9 = 0.0488888888888889

[Anonymous]

Thank you Shuihongwong – your responses are much appreciated. Not many people are aware of the spreadsheets to which you have provided these links – even I did not. So this is great.

Your explanation of the 4.9% is also spot on – thank you once again!

(I would like to suggest a yet another easier to digest way of looking at it. We know the zero rate at 3 months and 12 months, and need to extrapolate to the 10 month rate. The 10 month is 7 months away from the 3 month, and 2 months away from the 12 month rate. The 12 month rate will receive the larger weight, ie 7/9, and the 3 month will get the 2/9 weight. Therefore the extrapolated (or interpolated, whichever one prefers) rate = 5%*7/9 + 4.5%*2/9 = 4.888889%)

Mukul

[Anonymous]

I couldn’t imagine I would manage to find spreadsheets of handbook.Thousand thanks to shuihongwong.

[Michael]

Has anyone encountered questions with calculating mapping zero bonds at the real exam?

[Anonymous]

Thanks aren’t enough to you shuihongwong. You are the best !!!

[Author]

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