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    Surplus ar risk

    Hi David, Slide 44 (2012.T8 b Investment), the shortfall should be (surplus + surplus growth) - SAR... You used surplus - SAR ($20-$18.1). Please verify and advise. Thanks Imad
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    Standardised approach to credit risk under Basel II

    Hi David, If a bank retains the equity tranche of a securitization where the notional of the tranche is $10 mio and the tranche has a long term B- credit rating, what is the capital charge under the SA for securitization exposures? a- $400,000 b- $800,000 c- $1.2 mio d- $10 mio Your answer...
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    Expected shortfall

    Hi David, A bond with a face value of $10.0 million has a one-year probability of default (PD) of 1.0% and an expected recovery rate of 35.0%. What is the bond's one-year 99.0% expected shortfall (ES; aka, CVaR)? a. $3.25 million b. $6.5 million c. $9.1 million d. Not enough information: need...
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    Fixed income mapping

    Hi David, Assume a flat yield curve with spot rate of 4.0% at all maturities and normally distributed yield volatility of 1.0%. We are mapping a two-bond portfolio. Both bonds have a $100 million face value and pay an ANNUAL 4% coupon. One bond has a one year maturity; the other has a five...
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    The failure mechanics of dealer banks

    Hi David, Hope you are well. Can you please explain below comment: "a counterparty may also request to receive cash from options positions that are in-the-money by having them revised to at-the-money". Thanks Imad
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    Margined counterpaty

    Hi David, I couldn't understand the difference between margined and non margined counterparties. I know that margined counterpaty is the one that uses a margined agreement. Am I right? Thanks Imad
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    Capital charge

    Hi David, How are you? Would you please elaborate more the notion of capital charge. I came across different definitions such as "the cost to a company of borrowing money", "a monetary amount, calculated by multiplying the money the business has tied up in capital, by the weighted average cost...
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    Undiversified VaR

    Hi David, Chapter: Portfolio Risk: Analytical Methods It says that undiversified VaR is the sum of all VaRs of the individual positions in the portfolio when none of those positions are short positions. I couldn't understand the effect of "short positions" in the calculation of VaR...
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    UL and EL

    Hi David, Below is an example taken from Qbank. Can you please explain the outcome? Thanks Imad --------------------------------------------------------------------- Assume a portfolio consists of two loans of $1,000 with a correlation between loans of 0. Also, assume the only two outcomes for...
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    Recovery rate

    Hi David, Hope you are well. When we talk about recovery rate, we refer to the creditors (liability side of the bank) and not the debtors (asset side of the bank). I am a bit confused because I came accross an exemple where it mentions the recovery rate of the firm's traded bonds. This...
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    Estimating market risk measures

    Hi David Hope you are well. Appreciate if you could explain below example taken from Qbank. I couldn't understand the relation btwn PVBP and VAR? Thanks Imad Question 11 - #29487 The price value of a basis point (PVBP) of a $20 million bond portfolio is $25,000. Interest rate changes...
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    Regulatory capital vs Economic capital

    Hi David, I need a clarification please. I know that regulatory capital is the capital put by regulators and economic capital is the capital to cover UL. Basel II states that both are the same. Is this true? Thanks Imad
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    Measures of Price Sensitivity Based on Parallel Yield Shifts

    Hi David, Hope you are well. I have a question related to exemple on page 19 of your market risk study notes. In the exemple about the calculation of Macaulay duration, you got "k*price" as $1,702. I did not understand how you calculated this. I assume that K = 7. Please advise. Thanks Imad
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    Loss spiral & margin spiral

    Hi David, Hope you are well. I need a clarification on above subject. To my understanding, leverage ratio is debt to equity, however, in your notes (page 45 "current issues"), there was the following example: ***For example, consider an investor who buys $100 million worth of assets on...