FRM Part II · FRM Exam Part II · VaR Mapping
A risk manager maps a long forward on a commodity with no income into a spot position plus a zero-coupon bond. The forward has a delivery price of 100 and the 1-year discount rate is 4%; spot is 99. What is the approximate market value of the forward, and what is its main VaR risk exposure?
The forward's value is spot minus the discounted delivery price, 99 minus 100 over 1.04, which is about 2.85. Its main risk is spot price exposure with delta near one, plus a smaller interest rate exposure through the short zero-coupon bond leg.
- AAbout 2.85; exposure to spot price (delta near 1) and a small exposure to the 1-year rate through the short bondCorrect
- BAbout 1.00; exposure to the 1-year rate only
- CAbout 2.85; exposure only to the 1-year rate with no spot exposure
- DAbout 4.00; exposure to spot price only
Explanation
Value is S − K/(1.04) = 99 − 96.154 = 2.85. The forward carries nearly one-for-one exposure to spot, plus rate exposure from the short zero PV(K). Ignoring the spot leg or the discounting gives the other values.
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