Example 2110 FRM Exam 1999Question 149Credit Risk
21-10. (Complex) Assume that the DV01 of an interest-rate swap is equal to 4,000 times its time left to maturity in years. At initiation, the swap tenor is three years and the swap is at par. Assume that the interest-rate curve moves are parallel, stochastic with constant volatility, and normally distributed and independent with 1 day standard deviation of 5 bp. Assume 250 business days per year. The swap's maximum potential exposure at the 99% confidence level is approximately a) 700,000
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