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    Gregory chpt 10: super senior tranches, default/counterparty risk

    Can anyone explain what "the more senior a tranche, the more counterparty risk it creates" means? (P2.T6. Gregory; p32 of BT video slides). Is the statement based on the fact that the width of the most senior tranche is typically much wider than lower tranches? Wouldn't a protection buyer be...
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    CDS - Bond basis factors : confusing impact

    Hello David. Based on my reading of Choudry and the study notes, there seems to be a discrepancy on the basis for "Funding". The study notes indicate that funding levels in excess of LIBOR in the cash market with make the basis positive. Choudry indicates that LIBOR plus funding costs will...
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    Errors Found in Study Materials P1.T4. Valuation & Risk Models (OLD thread)

    Thanks. When you are updating this section, I think the formula (4.772 / (1 + 2.092%/2) should read (4.7702 / (1 + 2.092%/2 )) to match your spreadsheet. Note: This has been updated in the PDF v7
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    Errors Found in Study Materials P1.T4. Valuation & Risk Models (OLD thread)

    Hi David. On Tuckman Chapter 4 -- page 74 of your notes, I cannot reconcile your spreadsheet with your description when you Compare and contrast DV01 and Duration for 2 1/8 bonds yielding 2.092%. Specifically your description in the 7th bullet on page 74 "divides by the price times one plus...
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    Errors Found in Study Materials P1.T2. Quantitative Methods (OLD thread)

    Thank you. Clear explanations. I conclude that if the question (#1 above) had asked for the standard deviations I should give the sample standard deviations rather than the population standard deviations but that, as you note, it doesn't matter for beta and correlation. Should the last...
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    Errors Found in Study Materials P1.T2. Quantitative Methods (OLD thread)

    In the Stock & Watson Chapter 4 Notes on Univariate Linear Regression I have two questions: 1. On page 12 there is an example that uses a sample of 10 data points. The calculation of the standard deviations of X and Y and the covariance between X and Y all appear to use "n" as a divisor rather...
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    Difference between probability density function and inverse cumulative distribution function?

    Thank you David for the explanation which is very helpful. If the question had asked for the 5% VAR would the answer have been the same?
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    Difference between probability density function and inverse cumulative distribution function?

    In Question 300.2, the final price of the bond (i.e. the value of "x") is calculated using the inverse CDF such that 5% of the distribution is less than or equal to "x". This price is calculated to be $1.842 using p=5%. My interpretation of this is that 5% of the time the bond will be priced...
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