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  1. M

    How to set a stoploss

    Dear all. I have this practical case that requires me to set up a stoploss for trading book. I am okay with computing VAR, let it be absolute var 1000$, and in relative terms 2% of my current trading book value. But what about stoploss? One option is simply setup it equal to VAR, but this is...
  2. M

    Homoscedasticity vs heteroscedasticity

    Thank you ami44, Yes you are absolutely correct in 3. If Ya stands for bond’s A yield to maturity , Br base rate (risk free), Cr credit spread, then what I want is to express Ya as Ya=(alpha)*Br + (beta)*Cr + epsilon. Where the sum ((alpha)*Br + (beta)*Cr) stands for systematic part of the whole...
  3. M

    Linear regression: raw prices VS changes

    dear all, in the course frm1 we usually regress prices or other raw data rather than their changes or returns. I wonder if this right or wrong? The thing is in practice I want to regress a bond yield ( YTM) over level of base rates. Though it seems logical that any bond YTM must be regressed...
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    Homoscedasticity vs heteroscedasticity

    Dear all, I now try to calculate the factor VAR for my fixed income portfolio. The factor VAR assumes that each and every asset in the portfolio has an exposure on a set of the same factors. It’s greatest advantage is no need to calculate too many volatilities and correlations ( I have some 70...
  5. M

    YouTube T2-26: Maximum likelihood estimation of GARCH parameters

    In practice I tried to find the best lambda parameter for EWMA using MLE, but it turned out that the function I wanted to maximize didn’t have an extremum on any lambda less than 1. It was simply growing as lambda increased. So as my Excel solver just kept the solution for lambda as close to...
  6. M

    Initial vs Variation margin

    Totally agree with you David. Have eventually the same thoughts.
  7. M

    Initial vs Variation margin

    Yes always charge margin no matter who your client is, this is the lesson:)
  8. M

    Initial vs Variation margin

    Well I don't think I confuse actually. You are right my q was about why maintenance is less than initial. But I thought it is just a matter of convenience. Theoretically a bank can charge initial which is exactly the same as maintenance but in this case any single cent of price movement against...
  9. M

    Initial vs Variation margin

    Dear all, I can’t really get the idea why initial and variation margin are generally different? Let’s say market value of a share equals 100 , its 99% 1 day var equals 7. I am a broker and I set margin requirements for my client as 7 to be 99% sure I will not suffer a loss in the next day...
  10. M

    Cross Currency Swaps FX Risk

    David, thank you. Can you please clarify one more question on swaps (I didn’t find in search) if possible. We say “swap is par rate” without reference to the fact that swap may not in fact be funded. But if I really want to borrow , I need real cash and funding. I feel there should be some...
  11. M

    Cross Currency Swaps FX Risk

    David, concerning Hull 7.12. I thought if the company declared default, the bank was still supposed to make the 6th year payment in USD from his side, I can be wrong but it looks like "no netting of payments" is a real possibility in this case, how do you think?
  12. M

    Expected and unexpected losses:a practical case

    So the situation is like this. A client of us who defaulted recently has a number of nearly distressed bonds which he will give us as a compensation. Accordingly these bonds will become a part of our bond portfolio that constitutes of normal, not distressed bonds. The question to solve is at...
  13. M

    calculating volatility

    David, I am a bit concerned of voatility. This is given and that is fine, but lets put us for a minute in the shoes of a real trader. Ca you check the example and say if you think I am right or wrong computing volatility in this case of a currency pair. Of course this is only an example, I am...
  14. M

    Hello, Nicole! Possible to help me with my question please...

    Hello, Nicole! Possible to help me with my question please? https://www.bionicturtle.com/forum/threads/valuation-risk-models-topic-4-review-learning-spreadsheets-p1-t4-a-xls-bundle.22705/
  15. M

    Errors Found in Study Materials P1.T4. Valuation & Risk Models (OLD thread)

    David, referring to this video 25:50 you went to realzed forward scenario in yields. As stated this meant that previous forwards now became spot. But when you calculated new price of the bond , it seemed you still treated rates as forward, not spot. Specificaly you discounted the final bond cash...
  16. M

    Credit risk analysis: how to study?

    Dear forumers! I need to dive a little bit in the topic of credit analysis of borrowers. Specificaly I have a portfolio of banks and I need to assess their loans in the light of how well the final borrowers are doing. A very imporant part is analysing their financial statement, business...
  17. M

    Hull: binominal trees learning spreadsheet

    Interesting! of course I knew the geometric was less than arithmetic but have not thought of this special case when it is in fact a loss while the arithmetic says it is status quo. May be it is even possible to construct a case with arithmetic gain on the back of actual loss. Very misleading...
  18. M

    Hull: binominal trees learning spreadsheet

    David, I cant get how you calculated the average return in the binominal trees learning spreadsheet. I changed the returns as shown leaving all the formulas for total returns as they are. For me the number zero of average return doesnt look logical (see the picture please)