I think this is a simple topic which causes significant confusion!
Think about it from the regulators perspective, they want to establish a baseline of K * your average calculated VaR for the past 60 days but do not want to ignore significant VaR spikes which might indicate distress. Hence the...
For a portfolio of n bonds, for each KRD tenor, t, you calculate the portfolio market value weighted average simply as:
where the weight, w, for each security, i, is its current dirty market value divided by the total portfolio market value.
Ok, that's clearer now.
Case #1: Simplest Case
Assumption #1:
You already have the KRDs for each bond.
Assumption #2:
All bonds are priced off the same curve.
You can simply use the market value weighted average KRDs for the portfolio as a whole to calculate the value change. Simply apply...
If the market believes that the recovery rate (not directly observable in general) has increased then that would be reflected in the market prices.
What I'm talking about above is a situation where you're trying to obtain an estimate of the hazard rate curve (possibly for use in another...
This is a classic example of mixing up observations on real-world relationships and variables in a pricing model.
In a pricing scenario, a lot of the data used for pricing instruments (e.g. curves) are themselves implied from observable prices in the market. Hazard rate curves can be obtained...
There was certainly a lot less actual calculation than Part 1 but you still needed to know and understand the underlying mathematical relationships. For example, there were quite a few questions testing the relationships between variables:
e.g. if correlation increases would you expect a) X to...
My experience was that I required slightly more time to prepare for L2 than L1. This was mainly because it's more qualitative in nature and hence requires more reading of text. L1 is more quantitative, which I find easier to absorb as the notes are more succinct. I would conservatively suggest...
I think people are missing the point slightly with regard to the passing quartiles. If you pass you can call yourself a FRM but you have to have the knowledge to back that up otherwise you'll very quickly be found out by your colleagues/peers. Personally, I'd rather put the effort in and learn...
1) P1: 1,1,1,1 P2:1,3,1,1,1
2) All of them
3) Probably about 70%, with focus on areas that I found difficult or that end of chapter questions indicated I needed more time on.
I used the BT notes for all of my study except for those sections where there were no BT notes. In those cases I...
Not sure I follow your calculation of the expected surplus. Your calculation seems to assume that you would be receiving at the end of the year another 100*1.06 assets with additional liabilities of 90*1.07, giving total assets of 206 and total liabilities of 186.3 with a surplus of 19.7.
The...
I think the difference is that your approach gives the probability of surviving for 2 years THEN defaulting but the question asks for the probability of defaulting at any point in year 2, given that you've survived year 1.
The answer sheet has instructions for correcting answers. From what I can remember on Part I, they only allow you to correct the answer once... The answer sheet is carbon paper, hence no erasers.
I guess the answer depends a bit on where you are now. Are you already working in Financial Services or is your goal to move in that direction?
If you're already working, then these professional qualifications are a good thing to have on your CV. The value attached to each is dependent on which...
As I understand it, @QuantMan2318 's answer is correct. CVA is a valuation adjustment you apply to attempt to counteract the credit risk of your counterparty. DVA is the opposite i.e. a valuation adjustment applied to counteract your credit risk to your counterparty. In my experience, both are...
I had to do a double take on this question as well. As David says, the subtle wording is key. EWMA doesn't assume anything about the long run variance since it doesn't take it into account at all!
From what I understand, Hull is giving you information on how the quoted price is calculated, rather than the actual yield. The quoted price is always given with reference to the face value rather than the cash price. The discount rate (yield) you refer to is the return you would receive if...
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