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In a case like this, where the settlement date is in the middle of the coupon period, it is not right to use PV = -110 (minus the purchase price) in Step 3. Instead you should increase the purchase price by the accrued interest, which is a fraction of the coupon based on how far the settlement date is within the current coupon period. (So for ex if you are ...


Of course this does not make sense. But the problem is not the total return index but (most likely) the range of historical values used in the calibration. In a Solvency II setting we are talking about annual VaR on the 99.5% level. As a quick reality check assume you are a well versed extreme event modeller. In fact you just need at least 5 events. ...

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