Hi @David Harper CFA FRM and all,
This is not related to FRM, but still concept applies, so I am asking here. In the CFA L3 textbook, this para is given:
"In general, for an upward-sloping yield curve, the immunization target rate of return will be less than the yield to maturity because of...
There are 500 loans (1 million each) in a portfolio, each having a probability of default of 4%. It is estimated that 25 loans in a portfolio will default with a probability of 5%. What is the 95% value at risk?
(I am pretty sure this was the question, however, those who gave part 2 think I am...
Gregory has given a scenario where he says Portfolio value is -15 and collateral value is -18. Thus benefit with collateral is -3. (BT notes, Gregory Chapter 8, Pg 72)
He says thus, in this scenario, collateral can increase exposure.
My question is why should i look at the value of collateral...
Hi, I was reading Gregory from the notes where I came across one confusing part.
Now the red encircled one is I think contradictory to what is written here:
I believe the first image has wrong info? as I dont see the reason why there is not going to be any negative MtM value in case of...
Understanding the N(d2) is quite important as it is not only required in option pricing but also required to value debt and model probability of default which is very much prevalent in the part 2 curriculum.
I learnt a lot from here, anybody can have a look...
In the event of delivery squeeze, The value of the CDS declines. This is because the price of the underlying bond increases and hence payoff from settlement is lower. So how does this delivery squeeze induce negative CDS-Bond basis? The bond spread should be now lower/cds spread should be higher...
How can funding liquidity risk be converted from counter party risk? I can't get it in Gregory Chapter 5. Also, can anyone clear me on this' the institution will incur a funding cost when uncollateralized trade moves in their favor and experience a benefit when reverse happens'.
percentage impact of non constant volatility on option prices are more pronounced as time to maturity increases-This is what Hull's text says. Can anyone explain me why impact on prices become more pronounced even though the volatility smile itself becomes less pronounced when the maturity term...
In Hull Interest rate futures, he shows that future rates are higher than forwards due to interim cash flows and thus there is a convexity adjustment for futures and forwards.
However, I was thinking like this, the LIBOR rate is negatively correlated with that of the Eurodollar futures. In that...
I am a bit curious to know whether jensen's alpha has any relation to the error term in the security characteristic line? Security characteristic line regresses (Ri-Rf) against (Rm-Rf).
In this case, if i regress, then (Ri-Rf) = α + β(Rm-Rf) + ei
then, Ri= α + [Rf + β(Rm-Rf)] + ei
then, Ri =...
Just thought I would like to share how you actually loose money regardless of the direction of the underlying when you are short gamma (or convexity) by shorting an option.
∆a be the underlying shares (or bonds whatever)
we know convexity as ∆a+ 1/2 Г a^2
Thus, our net position will be ∆a -...
'Turning now to interpreting the results, the key-rate profile in Table 5.2 shows that the interest rate exposure of the 30-year C-STRIPS is equivalent to that of a long position in a 30-year par bond, a smaller, short position in a 10-year par bond, and even smaller short...
Tuckman says that if we write an option, and the interest rates fall, then there will be loss to the option writer and gain to the option holder.
But, rho (greeks) states otherwise, it says that call option holder gains if there is increase in the interest rates.
I am confused here?
Pachamanova, BT notes refers to Standard error of sample standard deviation = sigma sqrt(1/2T)
Where is this formula coming from? I have no clue. Since ir refers to sample standard deviation, is it refering to sampling distribution of sample standard deviation which we know as chi...
When I was reading Hull, he mentioned that some options e.g a european put option in the money or a call option on currencies with high interest rates will have positive theta.
can anyone give an intuitive explanation to this?
In a multivariate, is is desirable to have some correlation between the regressors? I mean, if there are uncorrelated factors, there might be higher R squared but some regressors may not be important to our analysis?
I have a doubt regarding Futures on government bonds.
Rise in interest rates decline value of the bonds.
But what about futures? The Valuation of futures would be on the basis of the spot price which will be lower but the risk free rate will be higher, thus they will be offsetting each other?