One question that stuck out for me was along the lines of:
An index halted trading for 5 weeks, during that 5 weeks, would the VaR of a portfolio that replicated the index be 0 or unchanged from before the halt in trading. Would the VaR immediately after trading resumed be the same as when...
A reoccurring them was relationships between variables. Very few direct calculation questions, quite a number of qualitative questions. A few sets of questions pertaining to very lengthy setup information.
- Next to nothing on the Tuckman readings from Market risk; which I spent a good month...
Hi David,
In your topic review for credit risk, you have a practice question from the FRM Handbook where a Company buys a total return swap, the mtm value of the underlying drops, but they receive no compensation for the decrease in market value, only the standard LIBOR + spread payment. Is this...
I think I've got it now, with a little help from elsewhere and a lot of help from David's youtube video on the topic.
In Malz, marginal PD means the unconditional probability of default in a given year. Let's not confuse this with what me usually mean when we say unconditional PD...
@David Harper CFA FRM CIPM Looking at this again, I think there is a mistake in Garp's answer.
Assuming they are asking for the 2 year conditional PD, should they not divide by the 1 year probability of survival?
The question asks for the probability of survival in the first year followed by...
Thanks Matthew, I can see that now. These default probabilities might just be my undoing. I thought I had them locked in but I'm still struggling with them. Especially marginal PD .
Hi @David Harper CFA FRM CIPM ,
This whole marginal PD is giving me a headache :). Per the assigned Malz reading, marginal PD is the derivative of the cumulative PD with respect to time right ? This is not the same as conditional PD right (conditional PD = PD conditional on survival up to this...
(I'm not 1,000% on this, so take it with a grain of salt. To my credit, I've read the relevant pages a couple hundred times over the year)
I was confused by usage of the single factor model presented in Malz (which by the way is called the Single Factor Vasicek Model - why some of the authors...
Hi,
I thought the conditional probability of default (the probability of default in year T given survival up to that point) was hazard*e^(- hazard * time). Putting that to the test in GARPs practice question below yields a close but incorrect value.
Question:
Is the problem asking for...
When I calculate a hazard rate to get the default probability, I am a bit off from the correct answer. Is there something wrong with my approach below?
Bond return = [(Face/Price)^(1/maturity)]-1 = 25%
Spread = Bond Return - Risk Free Rate = 20%
Hazard Rate = (Spread/1-Recovery) = 20%
1 year...
I may have posted too soon. Reading the text and the practice question more closely, Tuckman's dw has a standard deviation of sqrt(1/12) already and the practice question text says dw is a standard normal implying a standard deviation of 1 and not 1/12
....great practice questions btw.
Hi ,
In the practice questions for Tuckman chapter 9, the random normal in the short rate simulation models is scaled by sqrt(dt). In Tuckman's equation 9.2 (source page 252), the volatility is annual with a monthly time step, but he doesn't scale dw at all. Should we scale dw when the time step...
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