Risk Measures and Spread外文学习资料.pdf

RiskMeasures We will shortly give definitions of various risk measures. These measures are calculated by trading softwares to manage the risk in instruments and in portfolios. The delta value shows the sensitivity of the present value to changes in the main source of risk of an instrument. Examples of sources of risk are yield curves and the prices of underlying assets and the delta is calculated separately for these. The price delta calculations are only applicable for derivative instruments with an underlying instrument, valued on the basis of a non-term structure model. It shows the change in theoretical price given a unit change in the price of the underlying. For non- derivative instruments, such as bonds, a delta price value of 1.0 is used. The general Delta Price formula is PV PV U h PV U *scale price U h where U is the current value of the main source of risk and h is the differentiation step. When the market price of the underlying is used, the price shift is a relative shift, i.e. h = 0.0001 x U. When a theoretical underlying price is used, the price shift is an absolute shift, i.e. h = 0.01 Sometime this value is called delta explicit. Example: We want to calculate the Delta Price for a bond using a) the market price of the underlying, and b) the theoretical price of the underlying. a) Assume that the current market price of the underlying is U = 100.17. The present value will now be calculated twice, the first time using the current price of the underlying and the second time after applying a shift to the price of the underlying with the shift size 124 expressed as h = U x 0.0001 = 0.010017. We obtain: PV (U h) PV (U ) 100