Financial Risk Manager Part 2

Ultimate access to all questions.

Explanation:

The payoff for the correlation swap buyer is given by:

Payoff = Notional Amount × ( $\rho_{\text{realized}} - \rho_{\text{fixed}}$ )

Where:

$\rho_{\text{realized}} = \frac{2}{n^2 - n} \sum_{i>j} \rho_{ij}$
$= \frac{2}{3^2 - 3} \sum_{i>j} \rho_{ij}$
$= \frac{1}{3}(0.7 + 0.2 + 0.03) = 0.31$

Thus,

Payoff = $10,000,000(0.31 - 0.28) = ` $300`,000 = 0.3$ million

Explanation:

The payoff for the correlation swap buyer is given by:

Payoff = Notional Amount × ( $\rho_{\text{realized}} - \rho_{\text{fixed}}$ )

Where:

$\rho_{\text{realized}} = \frac{2}{n^2 - n} \sum_{i>j} \rho_{ij}$
$= \frac{2}{3^2 - 3} \sum_{i>j} \rho_{ij}$
$= \frac{1}{3}(0.7 + 0.2 + 0.03) = 0.31$

Thus,

Payoff = $10,000,000(0.31 - 0.28) = ` $300`,000 = 0.3$ million

Comments (0)

No comments yet.

Exam-Like

Community

UAnonymous

Last updated: July 5, 2026 at 07:18

$0.28$ millin

$0.31$ million

$0.3$ million

$0.25$ million