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3

You got some things wrong: You don't have to devide sd by $\sqrt{n}$, the division is already part of the definition of $sd$. The $t$ distribution has a parameter $\nu$, the degrees of freedom. The variance of a standard $t$ distributed random variable $T$ is $$VAR(T) = \nu/(\nu-2).$$ Thus you have to define $\sigma = sd * \sqrt{(\nu-2)/\nu}$ and a ...

1

If I interpret your question below correctly: I don't understand why the cash flow for the EUR spot long position is being calculated the way it is. It makes no sense to me. Seeing as it is a spot rate why is it's cash flow not simply spot * 100 MM EUR notional ? You want to know why Jorion takes 100MM EUR * spot * 1/(1+eur_rate) instead of 100MM ...

1

This link has a worthwhile discussion of two possible approaches: the Nearby approach (paragraph 6.6.1) and the Constant Maturity approach (para 6.6.2). http://www.value-at-risk.net/futures-prices/ . With the pluses and minuses of each. Ultimately it is going to come down to your judgement of what is best in your situation.

0

There are ways to get a continuous time series from switching futures prices. These include: 1) Taking return of a leading future contract (max open interest) on every date, and 2) Taking a weighted average return among a group of leading contracts, with weights based on open interest of each contract. For example: R_average = (OI1*R1 + OI2*R2)/(OI1 + OI2) ...

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