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Learn about the following:

What basis point value is. How it is calculated. What influences basis point value.

How firms use basis point value. The strengths and weaknesses of basis point value.

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- 45 minutes
- 8 question multiple choice test
- What basis point value is
- How it is calculated
- What influences basis point value
- How firms use basis point value
- The strengths & weaknesses of basis point value

**1. What basis point value is**

- Changes in the yield curve
- What it shows
- Calculating BPV
- Bond example
- How much you can gain or lose
- A simple measure

**2. What affects basis point value**

- The maturity of a cash flow or instrument
- Comparing different maturities-example
- Adjusting BPV for interest rate expectations
- How interest rate levels affect BPV
- Significance-example at different interest rates
- Changes in BPV and therefore risk
- Changes to hedge ratios

**3. How basis point value is used**

- Risk limits
- How and why dealers increase or decrease BPV
- Hedge ratios-example and assumptions

**4. Advantages & disadvantages**

- Simplicity
- Use for portfolios
- No probability of losses
- Non-parallel changes in the yield curve
- Credit risks

**5. Multiple choice test**

BPV is a method that is used to measure interest rate risk. It is sometimes referred to as a delta or DV01. It is often used to measure the interest rate risk associated with swap trading books, bond trading portfolios and money market books.

19th September 2009

Borrowers (issuers) often use the bond market to access medium and longer dated funding. Some issuers prefer variable rate liabilities, some fixed rate liabilities. All issuers want to be able to borrow the required amount at the lowest possible cost but just how does a fixed coupon bond issuer calculate the cost of funds on a floating rate basis? Let's see.

14th October 2009

Gap reports show you the interest rate risk you are running in your balance sheet. They put the assets and liabilities into time buckets in accordance with their interest rate repricing. From this simple approach you can obtain a table or graph of the risk being run. This normally includes a profit and loss figure that results from moving the yield curve. Gap limits are also applied in order to keep the interest rate exposure within risk tolerence. Gap reports aren't new; they are widely used and have both strengths and weaknesses. Let's find out more.

16th March 2011

Basis risk - an update It's a salutary fact that the regulator has identified that firms that run relatively large basis risks are more prone to margin compression. That's because excessive basis risk reduces your control over the balance sheet and calls into question your risk management and governance. Ask a trader about basis risk and they will tell you it is to do with ineffective hedging. You may think of it as the risk between Libor and Bank rate. The fact is basis risk means different things to different people. So let's define it. In the following article basis risk is "the degree of control you have over the margins in your balance sheet". This may seem an unusual definition but all will become apparent.

28th September 2020

This risk is still very much alive, so how do we form judgement on what our risk appetite should be? I’ll try and answer this by considering three things.