Can someone tell why this is wrong:
Var(Z|q) =E(Z^2|q) - [E(Z|q)]^2 with E(Z|q)=1000*q*v+1000*p*v^2, and E(Z^2|q)=1000*q*v^2+1000*p*v^4
The manual says Var(Z|q) = 1000^2*q*p*[(v-v^2)]^2 and I agree but why my approach is not correct.
Thanks
Var(Z|q) =E(Z^2|q) - [E(Z|q)]^2 with E(Z|q)=1000*q*v+1000*p*v^2, and E(Z^2|q)=1000*q*v^2+1000*p*v^4
The manual says Var(Z|q) = 1000^2*q*p*[(v-v^2)]^2 and I agree but why my approach is not correct.
Thanks
ASM 13 ed, Section 63: Interest Rate Risk
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