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Week in Risk Week in risk (October 21st)

David Harper CFA FRM

David Harper CFA FRM
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New Video
  • T1-1: What is financial risk? https://www.bionicturtle.com/forum/threads/t1-1-what-is-financial-risk.21074/ This is the first post in our new forum section that is devoted to a comprehensive review, in sequence, of our FRM video library in YouTube. The featured video were previously published, but the forum contains a new summary note that aims to efficiently convey essential elements and lessons that we've learned along the way via interaction with the community; for example, we are likely to post links to related issues, key lessons learned, representative practice questions and/or common misconceptions. We hope you enjoy this new resource!
  • Simple option trading strategies: an option plus the underlying asset (FRM T3-37) https://trtl.bz/2CRspV1
  • Vertical option spread trades: bull spread and bear spread (FRM T3-38) https://trtl.bz/2J66WYp
In the forum
  • [GARP 2018.P2] Bilateral and multilateral netting https://trtl.bz/2pQ5ReK
  • [GARP 2018.P2*] https://www.bionicturtle.com/forum/threads/garp-2018-p2-15-garp18-p2-15.21006/
  • [Calculator] Another bump for a terrifically helpful tip of retrieving day count with the TI BA II+ calculator's built-in function https://www.bionicturtle.com/forum/threads/day-counting.4820/
  • [P1.T1] FRM candidates should be able to break-down CAPM beta with cold confidence https://www.bionicturtle.com/forum/threads/capm.21062/
  • [P1.T2] Given a scenario that can be represented by a probability matrix, every possible Bayes Theorem should work; Bayes simply explicates the tautology that Pr(Unconditional)*Pr(Conditional) = Pr(Joint) https://trtl.bz/2NMYsGt
  • [P1.T2] A confidence interval is a "random interval" around the sample mean https://trtl.bz/2pWO4lT
  • [P1.T2] Thank you @emilioalzamora1 for your answer to the question: what renders a matrix no longer positive semidefinite? https://trtl.bz/2pWfEzJ
  • [P1.T3] The key to understanding the mortality table is understanding the definitions of conditional probability of death and cumulative (versus unconditional) probabilities of survival https://trtl.bz/2NMYmi5
  • [P1.T3] In bond default problems, unconditional default probability is a synonym for joint probability; i.e., joint probability of survival for T-years followed by default in the subsequent year https://trtl.bz/2pST4YT
  • [P1.T3] Do Saunders' FX hedge scenarios hold up to the CFA's FX translation rule of thumb (triangular arbitrage)? https://trtl.bz/2NGJ1Qd
  • [P1.T3] This FX futures contract question (inspired by Hull's EOC P! 5.14) is not as difficult as it seems; as is often the case, the hard part is understanding the setup https://trtl.bz/2R65SXh
  • [P1.T3] Why does an increase in the provision for loan losses decrease book equity? https://trtl.bz/2Rb5KGn
  • [P1.T4] You cannot solve fixed income hedging problems with (modified) duration alone because this measure does not account for the relative size(s) of the underlying and hedge positions; we solve with dollar duration, or its re-scaled equivalent, DV01 https://trtl.bz/2pVFMek
  • [P1.T4] What is "Markovian independence" and why is it an assumption (even if implicitly) in credit rating transition (aka, migration) matrix problems? https://trtl.bz/2pTLxJj
  • [P1.T4] The relationship between volatility and delta https://trtl.bz/2NKEfkH
  • [P1.T4] Dissecting the delta-hedge of a forex position (my question 821.1 this is inspired by Hull's EOC PQ 19.22) https://trtl.bz/2NISTcc
  • [P1.T4] When do we include or exclude the sample mean in our estimation of volatility? https://trtl.bz/2q2ptw6
  • [P1.T4] Understanding the particulars of the probability that a stock price will breach the exercise when the price exhibits a lognormal property https://trtl.bz/2R2TK9y
  • [P1.T4] An FRM candidate should be a master of using duration to estimate the bond price change implied by a yield shock https://trtl.bz/2R89AA1
  • [P2.T5] A good follow-up question to a SIMPLE expected shortfall (ES) exercise, all FRM candidates should be able to retrieve ES at various confidence levels for a single bond https://trtl.bz/2NMOgOh
  • [P2.T5] A key, classic contrast between exotic and standard options is the trade-off between liquidity and basis risk https://trtl.bz/2NP2rT4
  • [P2.T5] What does Meissner mean by "buying correlation" in a trade that is long index call options plus short the individual components https://trtl.bz/2R3UX0l
  • [P2.T5] Why does Jorion pre- and post-multiply the vector of cash flows in fixed income VaR mapping? https://trtl.bz/2Rb5gQz
  • [P2.T5] More on implied volatility and the challenge of interpretations in comparison to the flat volatility smile that is natural to the BSM https://trtl.bz/2R0JDSG
  • [P2.T5] The inverse of the true statement "if independent → ρ(.) = 0" is false but the contrapositive is true https://trtl.bz/2R45hFK
  • [P2.T5*] Seeking clarity on when, if ever, to use a normal two-sided deviate of 1.96 rather than the standard one-sided 1.645 for value at risk (VaR) calculations https://www.bionicturtle.com/forum/...-backtest-significance-jorion.3604/post-70630
  • [P2.T6] Are EAD and especially loss given default (LGD) truly time-dependent? https://trtl.bz/2pQ5u3Q
  • [P2.T6] Fundamental skill: VaR backtest is (just) an application of the binomial distribution https://trtl.bz/2pV3lDK
  • [P2.T6*] How can we use credit derivatives to hedge counterparty risk, considered that the exposure will fluctuate through time? And what are the feedback effects? https://trtl.bz/2NMtnCW
  • [P2.T6] Elaborating on the moral hazard and asymmetric information problems inherent to a central counterparty (CCP) https://trtl.bz/2NMQKfz
  • [P2.T6] In regard to the credit exposure profile of a CDS, there is a difference between a FLAT credit curve and a CONSTANT credit spread; i.e., Gregory's example assumes a volatile spread but a flat credit curve https://trtl.bz/2NOWXaO
  • [P2.T6] Thank you @Marco.Musci for your keen observation that my term "expected future MTM" is mistaken https://trtl.bz/2NPp6i1
  • [P2.T6] Thank you again @emilioalzamora1 for your answer to the question, Why does deleveraging increase the cost of funds? https://trtl.bz/2NOpwW3
  • [P2.T6] What is the impact of an increase in demand from CDS protection buyers on the CDS-bond basis https://trtl.bz/2q0bUgL
  • [P2.T8] Surplus value at risk (SVaR) in GARP's practice papers https://trtl.bz/2pXOs3T
  • [P2.T6] The three classic zones in the Altman's Z model https://trtl.bz/2R05gCK
  • [P2.T7] Is there a difference between our Adjusted RAROC = (RAROC - Rf)/β and another provider's Adjusted RAROC=RAROC β*(E(Rm)-Rf)? https://trtl.bz/2R5KaCN
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