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Financial Risk Manager Part 1

Financial Risk Manager Part 1

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The Chief Risk Officer (CRO) of a small financial institution aims to evaluate the volatility of the institution's asset portfolio by leveraging its key rate durations. This is to aid in determining the required capital to mitigate market risk. The institution's portfolio is solely influenced by the 2-year and 10-year spot rates. The relevant data regarding market rates and the portfolio is summarized in the table below:

MaturityStandard Deviation of Daily Spot Rate Changes (bps)Correlation of Spot RatesPortfolio Key Rate Durations (CAD)
2-year40.652
10-year110.697

Considering the given data, what is the standard deviation of the daily change in the value of the portfolio?

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