Jun 08

Free Quantitative Primer (Movie Tutorial) for 2007 FRM

by David Harper, CFA, FRM, CIPM

FRM |

quantPrimer180w

 

We published today a quantitative primer for the 2007 FRM. A few of our customers asked for a refresher on quantitative methods. You can browse the one hour movie here. We thought it would help to review Greek notation, compounding/discounting, matrix math and first-order derivatives.

 

Understanding notation can help. Did you know Greek notation is used for population parameters and Roman letters denote sample statistics (parameter:population as statistic:sample).

quantPrimer_greek1

 

What do we use for the discount rate? One way is build-up from the risk-free rate. Investors expect additional yield for additional risks; e.g., inflation, default, liquidity and maturity....

quantPrimer_rates2

 

Discounting is just compounding in reverse....

quantPrimer_compound1

 

We take a quick look at a correlation matrix (below; notice ones in the diagonals. Assets are perfectly correlated to themselves!) and a variance-covariance matrix.

quantPrimer_matrix1

 

Finally, we look at a first-order partial derivative. This is a key building block, both delta (for option price sensitivity) and duration (for bond price sensitivity) are based on this idea.

quantPrimer_derivatives

Comments

  1. Mike Taylor 09 Jun 2007

    Thank you for the great primer!  I find your site very helpful.

    Keep up the great work!

    MT

  2. David Harper, CFA, FRM 10 Jun 2007

    Thanks for visiting Mike. If you have suggestions for other tutorials, I would love to hear them.

  3. Pim 19 Jun 2007

    Thank you!  you help me a lot

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