Reading 16 - BB 9. Mistake?

[archived_user]

I think wrong here.
If we look scenario 1. They solve P&L of net position (70% original exposure and 30% hedged). They have 5M - 1.2M =3.8M.
The 5M is for 100% original but it’s only 70% now. So I use, 70M * 0.05 = 3.5M for 70% original exposure.
The net P&L I think should be = 3.5M -1.2M = 2.3M instead of 3.8M.
Any help thank you.

 

[archived_user]

Another_attempt wrote:
I think wrong here.
If we look scenario 1. They solve P&L of net position (70% original exposure and 30% hedged). They have 5M - 1.2M =3.8M.
The 5M is for 100% original but it’s only 70% now. So I use, 70M * 0.05 = 3.5M for 70% original exposure.
The net P&L I think should be = 3.5M -1.2M = 2.3M instead of 3.8M.
Any help thank you.
Here, please look at what we are doing:
1. we have a swap position of 30 M -P/L on it is -1.2 M
2. we have portfolio of 100 M. P/L on it is 5M.
Now net P/L will be 5–1.2 = 3.8 right? 3.8 M.
You have taken 70% of portfolio return. There is no position of 70% so rethink on those lines.
Hope this clarifies.