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P2.T6. Credit Risk (25%)
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Errors Found in Study Notes P2.T6. Credit Risk
Hi, Reading: 45 Page Number: 18 Error: Formula for P [ At < D ] Shouldn't there be a negative sign in front of the ratio that we're applying the standard normal CDF on?
Hi, Reading: 45 Page Number: 18 Error: Formula for P [ At < D ] Shouldn't there be a negative sign in front of the ratio that we're applying the standard normal CDF on?
Hi, Reading: 45 Page Number: 18 Error: Formula for P [ At < D ] Shouldn't there be a negative sign in front of the ratio that we're applying the standard normal CDF on?
Hi, Reading: 45 Page Number: 18 Error: Formula for P [ At < D ] Shouldn't there be a negative sign in front of the ratio that we're applying the standard normal CDF on?
Nicole Manley
,
Aug 5, 2015
Replies:
4
Views:
609
MBK
Aug 23, 2016 at 12:14 PM
GARP.FRM.PQ.P2
question in derivation process of merton model credit spread
Logarithm quotient rule logb(x / y) = logb(x) - logb(y) is the formula used for calculation its not 1/x it x/y ...
Logarithm quotient rule logb(x / y) = logb(x) - logb(y) is the formula used for calculation its not 1/x it x/y ...
Logarithm quotient rule logb(x / y) = logb(x) - logb(y) is the formula used for calculation its not 1/x it x/y ...
Logarithm quotient rule logb(x / y) = logb(x) - logb(y) is the formula used for calculation its not 1/x it x/y ...
nwalker
,
Aug 27, 2016 at 5:36 AM
Replies:
1
Views:
22
desh
Aug 27, 2016 at 4:06 PM
Considerations about commitment fee and EAD
Hi to all! If I understood correctly, banks apply a commitment fee (fixed percentage) on the undrawn portion of a credit line to hedge the further expected loss associated with that credit exposition. So you have to pay more if you are using a small drawn portion of the credit line. Now, given the fact that a firm with an high rating (such as AA or A) will only use a small part of the credit...
Hi to all! If I understood correctly, banks apply a commitment fee (fixed percentage) on the undrawn portion of a credit line to hedge the further expected loss associated with that credit exposition. So you have to pay more if you are using a small drawn portion of the credit line. Now, given the fact that a firm with an high rating (such as AA or A) will only use a small part of the credit...
Hi to all! If I understood correctly, banks apply a commitment fee (fixed percentage) on the undrawn portion of a credit line to hedge the further expected loss associated with that credit exposition. So you have to pay more if you are using a small drawn portion of the credit line. Now, given...
Hi to all! If I understood correctly, banks apply a commitment fee (fixed percentage) on the undrawn portion of a credit line to hedge the further expected loss associated with that credit...
Tradespotting
,
Aug 24, 2016 at 6:18 AM
Replies:
0
Views:
31
Tradespotting
Aug 24, 2016 at 6:18 AM
CDS pricing question!
Hi @no_ming Yes, on one level, that's correct: the question implies an increase in price and, if we naively assume that the price determines the collateral posted (as the question implies), then the price increase implies additional collateral is posted. As discussed, most of the price movement should be fundamental (i.e., changes in the reference's credit quality) but, as is always the case,...
Hi @no_ming Yes, on one level, that's correct: the question implies an increase in price and, if we naively assume that the price determines the collateral posted (as the question implies), then the price increase implies additional collateral is posted. As discussed, most of the price movement should be fundamental (i.e., changes in the reference's credit quality) but, as is always the case,...
Hi @no_ming Yes, on one level, that's correct: the question implies an increase in price and, if we naively assume that the price determines the collateral posted (as the question implies), then the price increase implies additional collateral is posted. As discussed, most of the price movement...
Hi @no_ming Yes, on one level, that's correct: the question implies an increase in price and, if we naively assume that the price determines the collateral posted (as the question implies), then...
no_ming
,
Aug 6, 2016
Replies:
8
Views:
195
David Harper CFA FRM
Aug 16, 2016
Real world application: Deriving default probabilities from observed CDS spreads
Hi there, I have to solve a problem which is actually a real world application of Malz, Chapter 7 - Bootstrapping default probabilities given an observable CDS spread curve. Please refer to the excel attached: I have created an excel spreadsheet that should do the calculation. What it basically does is - given an observable CDS spread curve - modelling the cash flows of a hypothetical CDS...
Hi there, I have to solve a problem which is actually a real world application of Malz, Chapter 7 - Bootstrapping default probabilities given an observable CDS spread curve. Please refer to the excel attached: I have created an excel spreadsheet that should do the calculation. What it basically does is - given an observable CDS spread curve - modelling the cash flows of a hypothetical CDS...
Hi there, I have to solve a problem which is actually a real world application of Malz, Chapter 7 - Bootstrapping default probabilities given an observable CDS spread curve. Please refer to the excel attached: I have created an excel spreadsheet that should do the calculation. What it...
Hi there, I have to solve a problem which is actually a real world application of Malz, Chapter 7 - Bootstrapping default probabilities given an observable CDS spread curve. Please refer to the...
cAse113
,
Aug 4, 2016
Replies:
0
Views:
74
cAse113
Aug 4, 2016
Credit curve and CVA
Hi @taunk , Yes, typo on my end. You're right. Explanation became a little too wordy so I missed my own typo
. Thanks for correcting!
Hi @taunk , Yes, typo on my end. You're right. Explanation became a little too wordy so I missed my own typo
. Thanks for correcting!
Hi @taunk , Yes, typo on my end. You're right. Explanation became a little too wordy so I missed my own typo
. Thanks for correcting!
Hi @taunk , Yes, typo on my end. You're right. Explanation became a little too wordy so I missed my own typo
. Thanks for correcting!
arkabose
,
Jul 11, 2016
Replies:
7
Views:
196
Mkaim
Jul 29, 2016
Marginal CVA
Hi @ami44 In regard to to Gregory's Table 12.6 above, I would just add: On the total line, there is only a summation of standalone CVAs (392,973) which is maybe not so useful except as as unrealistic, undiversified CVA (but diversification here, just exactly as @ami44 says, is a dynamic really due to the netting agreement in the netting set) versus the "actual" (i.e., diversified at the...
Hi @ami44 In regard to to Gregory's Table 12.6 above, I would just add: On the total line, there is only a summation of standalone CVAs (392,973) which is maybe not so useful except as as unrealistic, undiversified CVA (but diversification here, just exactly as @ami44 says, is a dynamic really due to the netting agreement in the netting set) versus the "actual" (i.e., diversified at the...
Hi @ami44 In regard to to Gregory's Table 12.6 above, I would just add: On the total line, there is only a summation of standalone CVAs (392,973) which is maybe not so useful except as as unrealistic, undiversified CVA (but diversification here, just exactly as @ami44 says, is a dynamic really...
Hi @ami44 In regard to to Gregory's Table 12.6 above, I would just add: On the total line, there is only a summation of standalone CVAs (392,973) which is maybe not so useful except as as...
Kavita.bhangdia
,
Apr 1, 2016
Replies:
9
Views:
312
David Harper CFA FRM
Jul 18, 2016
CVA
Thank you, so it is kind of sensitivity analysis rather than the actual mechanism which i was confused about.
Thank you, so it is kind of sensitivity analysis rather than the actual mechanism which i was confused about.
Thank you, so it is kind of sensitivity analysis rather than the actual mechanism which i was confused about.
Thank you, so it is kind of sensitivity analysis rather than the actual mechanism which i was confused about.
Kavita.bhangdia
,
May 17, 2016
Replies:
9
Views:
266
arkabose
Jul 13, 2016
Funding liquidity risk
Thanks @QuantMan2318 was getting it but still it was cloudy. Your explanation cleared it!
Thanks @QuantMan2318 was getting it but still it was cloudy. Your explanation cleared it!
Thanks @QuantMan2318 was getting it but still it was cloudy. Your explanation cleared it!
Thanks @QuantMan2318 was getting it but still it was cloudy. Your explanation cleared it!
arkabose
,
Jul 7, 2016
Replies:
2
Views:
93
arkabose
Jul 7, 2016
Potential Future Exposure (PFE)
Hi @QuantMan2318, I did something similar to yours and also got integral of a cum.normal variable Hi Brian, The classic example of integration by parts - tried that....
Hi @QuantMan2318, I did something similar to yours and also got integral of a cum.normal variable Hi Brian, The classic example of integration by parts - tried that....
Hi @QuantMan2318, I did something similar to yours and also got integral of a cum.normal variable Hi Brian, The classic example of integration by parts - tried that....
Hi @QuantMan2318, I did something similar to yours and also got integral of a cum.normal variable Hi Brian, The classic example of integration by parts - tried that....
allenpee85
,
May 26, 2016
Replies:
17
Views:
381
Dr. Jayanthi Sankaran
Jun 30, 2016
Dodd Frank, Std Approach in US
Since Dodd Frank Act prohibits banks to use credit ratings for calculation of regulatory capital, is it fair to say that no US bank uses standardized approach (since std. app. was largely based on external credit ratings? Also, I am reading a recent "Revisions to the Standardised Approach for credit risk", December 2015 Basel publication. The paper has different provisions for...
Since Dodd Frank Act prohibits banks to use credit ratings for calculation of regulatory capital, is it fair to say that no US bank uses standardized approach (since std. app. was largely based on external credit ratings? Also, I am reading a recent "Revisions to the Standardised Approach for credit risk", December 2015 Basel publication. The paper has different provisions for...
Since Dodd Frank Act prohibits banks to use credit ratings for calculation of regulatory capital, is it fair to say that no US bank uses standardized approach (since std. app. was largely based on external credit ratings? Also, I am reading a recent "Revisions to the Standardised Approach...
Since Dodd Frank Act prohibits banks to use credit ratings for calculation of regulatory capital, is it fair to say that no US bank uses standardized approach (since std. app. was largely based...
Delo
,
Jun 30, 2016
Replies:
0
Views:
70
Delo
Jun 30, 2016
Risk free debt, merton model
Hi @Stuti It would be helpful if you started a new thread (or attached to a relevant thread) when changing the topic. @Mkaim is symbolically correct about roll-down, but Tuckman gives a very technical (i.e., specific) definition. In chapter 3, he parses a bond's total price change (appreciation) into three components: (i) carry-roll-down, (ii) rate change and (iii) spread change....
Hi @Stuti It would be helpful if you started a new thread (or attached to a relevant thread) when changing the topic. @Mkaim is symbolically correct about roll-down, but Tuckman gives a very technical (i.e., specific) definition. In chapter 3, he parses a bond's total price change (appreciation) into three components: (i) carry-roll-down, (ii) rate change and (iii) spread change....
Hi @Stuti It would be helpful if you started a new thread (or attached to a relevant thread) when changing the topic. @Mkaim is symbolically correct about roll-down, but Tuckman gives a very technical (i.e., specific) definition. In chapter 3, he parses a bond's total price change (appreciation)...
Hi @Stuti It would be helpful if you started a new thread (or attached to a relevant thread) when changing the topic. @Mkaim is symbolically correct about roll-down, but Tuckman gives a very...
Kavita.bhangdia
,
Apr 26, 2016
Replies:
17
Views:
460
David Harper CFA FRM
Jun 27, 2016
Hazard Rates and probability of survival
Hi there @Stuti Those are excellent questions, however, they involve some mathematical properties and I shall endeavor to explain based on some mathematical knowledge that I had to delve into, though not as deep as needed by a STEM person, for an FRM. More advanced practitioners over here will be able to explain in greater detail. Lambda or Hazard rate is the parameter which determines how...
Hi there @Stuti Those are excellent questions, however, they involve some mathematical properties and I shall endeavor to explain based on some mathematical knowledge that I had to delve into, though not as deep as needed by a STEM person, for an FRM. More advanced practitioners over here will be able to explain in greater detail. Lambda or Hazard rate is the parameter which determines how...
Hi there @Stuti Those are excellent questions, however, they involve some mathematical properties and I shall endeavor to explain based on some mathematical knowledge that I had to delve into, though not as deep as needed by a STEM person, for an FRM. More advanced practitioners over here will...
Hi there @Stuti Those are excellent questions, however, they involve some mathematical properties and I shall endeavor to explain based on some mathematical knowledge that I had to delve into,...
Kashif Khalid
,
May 16, 2016
Replies:
6
Views:
228
QuantMan2318
Jun 25, 2016
Marginal CVA vs Incremental
Hi @nicoloco Gregory (assigned in T6) uses examples to illustrate the difference between marginal CVA and incremental CVA. There is a valid analogy to incremental (portfolio) VaR versus component VaR (which is a direct function of marginal VaR): just as component VaRs sum to portfolio VaR, marginal CVAs sum to total CVA and do not depend on the trade sequence. Incremental CVAs, however, do...
Hi @nicoloco Gregory (assigned in T6) uses examples to illustrate the difference between marginal CVA and incremental CVA. There is a valid analogy to incremental (portfolio) VaR versus component VaR (which is a direct function of marginal VaR): just as component VaRs sum to portfolio VaR, marginal CVAs sum to total CVA and do not depend on the trade sequence. Incremental CVAs, however, do...
Hi @nicoloco Gregory (assigned in T6) uses examples to illustrate the difference between marginal CVA and incremental CVA. There is a valid analogy to incremental (portfolio) VaR versus component VaR (which is a direct function of marginal VaR): just as component VaRs sum to portfolio VaR,...
Hi @nicoloco Gregory (assigned in T6) uses examples to illustrate the difference between marginal CVA and incremental CVA. There is a valid analogy to incremental (portfolio) VaR versus component...
kevinyuen
,
Aug 11, 2015
Replies:
5
Views:
660
David Harper CFA FRM
Jun 15, 2016
Weighted average life (WAL), Choudhary Chapter 12
Thanks @David Harper CFA FRM , Thanks for clarifying and thanks for all the help. Gotta go check into the hotel where the exam is being offered. Good luck for the exam today (India) @Delo
Thanks @David Harper CFA FRM , Thanks for clarifying and thanks for all the help. Gotta go check into the hotel where the exam is being offered. Good luck for the exam today (India) @Delo
Thanks @David Harper CFA FRM , Thanks for clarifying and thanks for all the help. Gotta go check into the hotel where the exam is being offered. Good luck for the exam today (India) @Delo
Thanks @David Harper CFA FRM , Thanks for clarifying and thanks for all the help. Gotta go check into the hotel where the exam is being offered. Good luck for the exam today (India) @Delo
NNath
,
Mar 12, 2016
Replies:
10
Views:
396
Mkaim
May 20, 2016
Credit Derivatives, Correlations & Impact on Credit Exposure
Hi there My understanding is that credit derivatives can provide protection against a credit event but does it impact the credit exposure or CVA calculation? Also what impact does correlation have on CVA if any? does it impact the Probability of Default in our CVA calculation? Thanks
Hi there My understanding is that credit derivatives can provide protection against a credit event but does it impact the credit exposure or CVA calculation? Also what impact does correlation have on CVA if any? does it impact the Probability of Default in our CVA calculation? Thanks
Hi there My understanding is that credit derivatives can provide protection against a credit event but does it impact the credit exposure or CVA calculation? Also what impact does correlation have on CVA if any? does it impact the Probability of Default in our CVA calculation? Thanks
Hi there My understanding is that credit derivatives can provide protection against a credit event but does it impact the credit exposure or CVA calculation? Also what impact does correlation...
Kashif Khalid
,
May 20, 2016
Replies:
0
Views:
85
Kashif Khalid
May 20, 2016
Spread Risk Factor
Wow.. That was a teaser.. Thanks kavita
Wow.. That was a teaser.. Thanks kavita
Wow.. That was a teaser.. Thanks kavita
Wow.. That was a teaser.. Thanks kavita
Delo
,
May 17, 2016
Replies:
3
Views:
100
Kavita.bhangdia
May 17, 2016
Gregory: CVA
Hi I agree with you, I am similarly confused by this Gregory argument. (I will email him). First, he writes something very intuitive: "Let us first review the impact of increasing the credit spread of the counterparty in Table 12.1. The increase in credit spread [dh: credit curve = plot of credit spread versus maturity] clearly increases the CVA, but this effect is not linear since default...
Hi I agree with you, I am similarly confused by this Gregory argument. (I will email him). First, he writes something very intuitive: "Let us first review the impact of increasing the credit spread of the counterparty in Table 12.1. The increase in credit spread [dh: credit curve = plot of credit spread versus maturity] clearly increases the CVA, but this effect is not linear since default...
Hi I agree with you, I am similarly confused by this Gregory argument. (I will email him). First, he writes something very intuitive: "Let us first review the impact of increasing the credit spread of the counterparty in Table 12.1. The increase in credit spread [dh: credit curve = plot of...
Hi I agree with you, I am similarly confused by this Gregory argument. (I will email him). First, he writes something very intuitive: "Let us first review the impact of increasing the credit...
Kavita.bhangdia
,
May 13, 2016
Replies:
1
Views:
145
David Harper CFA FRM
May 13, 2016
CVAR: another problem
I would appreciate a schematic in this too to clear things up a bit.
I would appreciate a schematic in this too to clear things up a bit.
I would appreciate a schematic in this too to clear things up a bit.
I would appreciate a schematic in this too to clear things up a bit.
Kavita.bhangdia
,
May 13, 2016
Replies:
1
Views:
89
brian.field
May 13, 2016
gregory chapter 7: winners curse
HI David, Gregory says that CCP may suffer from winner curse where the lost cost CCP provider ends up with more risky products and less credit worth members.. How is that? Thanks Kavita
HI David, Gregory says that CCP may suffer from winner curse where the lost cost CCP provider ends up with more risky products and less credit worth members.. How is that? Thanks Kavita
HI David, Gregory says that CCP may suffer from winner curse where the lost cost CCP provider ends up with more risky products and less credit worth members.. How is that? Thanks Kavita
HI David, Gregory says that CCP may suffer from winner curse where the lost cost CCP provider ends up with more risky products and less credit worth members.. How is that? Thanks Kavita
Kavita.bhangdia
,
May 13, 2016
Replies:
0
Views:
99
Kavita.bhangdia
May 13, 2016
Credit VaR vs CVA
Hi @Maged, I think you can calculate both the CVA and the CVaR for Corporate/Retail Loans as well as any security based Counterparty exposure. In line with what @David Harper CFA FRM has pointed out, I would hazard that CVA is more of an Accounting Measure that tries to incorporate the Expected Losses in the Statement of P/L (Income Statement). There are currently discussions going on in the...
Hi @Maged, I think you can calculate both the CVA and the CVaR for Corporate/Retail Loans as well as any security based Counterparty exposure. In line with what @David Harper CFA FRM has pointed out, I would hazard that CVA is more of an Accounting Measure that tries to incorporate the Expected Losses in the Statement of P/L (Income Statement). There are currently discussions going on in the...
Hi @Maged, I think you can calculate both the CVA and the CVaR for Corporate/Retail Loans as well as any security based Counterparty exposure. In line with what @David Harper CFA FRM has pointed out, I would hazard that CVA is more of an Accounting Measure that tries to incorporate the...
Hi @Maged, I think you can calculate both the CVA and the CVaR for Corporate/Retail Loans as well as any security based Counterparty exposure. In line with what @David Harper CFA FRM has pointed...
Maged
,
May 10, 2016
Replies:
3
Views:
412
QuantMan2318
May 11, 2016
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