ARRIBA

A Note about Delta-Gamma Value at Risk (VaR) as Taylor Series

Alberto asked a good question here about using the delta-gamma formula to estimate the VaR of an option position. Lu Shu (lushukai) gave an excellent reply and he itemized the four possible long/short call/put scenarios. This refers to one of the most fundamental quantitative applications in risk finance, which is to say the Taylor Series expansion. It is... Read More

Capital Market Line (CML) vs. Security Market Line (SML)

We received a question on YouTube that is helpful in understanding the relationship (and difference) between the Capital Market Line (CML) and the Security Market Line (SML). Related, earlier in the year Akriti1 posted another provider's (EPP's) flawed CML/SML practice question that's typical of a naïve understanding of the CML/CAPM framework: the author presumes the only difference is... Read More

Modified Duration

Our forum contains hundreds of questions about duration. Duration often vexes new candidates, in part because there are several types. Let's first settle a confusion: the units of all durations are years (time). So, regardless of which duration, we can typically say something like "The bond's duration is 4.52 years." I taught duration several years... Read More