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Hi David, nevermind my question. I found out from my FRM P1 note. The difference is closely related to the difference between arithmetic mean and geometric mean. The mean return will always be slightly less than the expected return just as the geometric mean will always be slightly less than...

David, Thanks for the great explanation above. This greatly helps me understand the topic. However, I still don’t understand why you use the formula V(0)*exp(mu - asset variance^2/2)*T instead of V(0)*exp(mu)*T to calculate V(t). Can you expand the explanation a little further? Thanks.

Below I am trying to show the relationship between Merton PD and the BSM. Merton PD = N[ -[ln(V/K)+(μ-0.5σ²)T]/σT ] The formula inside the bracket (let’s name it D2 since it) is very similar to the formula for d2 in the BSM for pricing call option: d2 = ln(S/X)+(r-0.5σ²)T]/σT So we have...

Hi David, Thanks for the posting. Sorry this is still not very clear to me. 1. How are the values from period 5 to 10 in the “shock” column determined (I can understand from period 1 to 4). 2. Your table calculates the value 100,452.15 for “after 2 year shift.” So to calculate the initial...

David, It would be GREATLY appreciated if you could copy the calc here (also if you could please include calc for table 7.2), since I'm on the topic right now. I got the discount code (returning customer) from Suzzane and I plan to register in the next couple days (T2 or T3). Thank you very...

I'm still debating on which tier to register for. Well, that certainly helps in the decision making process ;) .

Hi David, For table 7.1, can you show how the values in column 1 were calculated? For the initial value, we don’t know the FV for PV calculation. How is 100,453.13 calculated? How is the value calculated for after 2 year shift, 5 year shift, etc.? The book does not provide explanations...

Hi Freddel02, if you still interested in the books, please write to me at [email protected]. Thanks.

Also passed with all 25 :)

I had the same issue and had to resolve it at the last day (Friday). GARP simply added my middle name to my first name. It's rediculous that they don't even allow us to have middle name.

Hi, This might be a stupid question, but is Joseph Jett in the Kidder Peabody considered a rogue trader? Does reporting false profits constitute a rogue trader? In the cases of Baring, Daiwa, Allied and Sumitomo, all of them made unauthorized trades (rogue traders). Thanks.

Hi David, I have more seemingly contradicting notes. Sorry I didn't know if I should create a new thread since it pertains to different topic but... 1. Consistent (estimator) means the "accuracy of the estimator increases as n increases, i.e., the standard error of the sample mean decreases...

Hi David, Sorry this is still not very clear to me. Diversified SumVaR^2 = VaR1^2 + VaR^2 + 2*VaR1*VaR2*0.25 = 0.41125^2 + 2.96^2 + 2*0.41125*2.96*0.25 --> we get DIVERSIFIED VAR of $3.089 as you calculated above. Then shouldn't undiversified SumVaR^2 = VaR1^2 + VaR^2, i.e., dropping out...

Hi David, Thanks. That makes sense, but I think only if we are aggregating the VAR in $ terms? There's a question in the 2010 GARP practice exam where we were given the volatilitities of 5% and 12% for Bond A ($25M) and Bond B($75M), respectively, with correlation of 0.25. We were then...

Hi David, This might be a stupid question but why do we ignore the weights of the stocks and bonds when aggregating portfolio VAR in the formula above? Thanks.

Hi David, Looking over my notes I found the following 3 sentences in my notes, which seem to contradict each other. Can you why they are correct or incorrect? Thanks. Sleepybird. 1. In a friction-less market, financial transactions to reduce a firm's systematic risk will not increase firm...

David, thanks. I was referring to Q#11 of the sample exam questions at the end of Valuation and Risk Models book.

Hi David, Does homoskedasticity simply means the variance of the residual is constant across all observation in the sample? But does it also assume that it does not depend on the independent variables? On some parts of the notes/readings, it simply refers to constant variance but other...

Sorry the table was copied from excel. For method 2, using the weighted average of time method, I get duration of 1.9061 and convexity of 3.7183, which differ from duration of 1.6723 and convexity of 4.3283 calculated in method 1. Thanks.

Hi David, Why "short a coupon bond is equivalent to long effect duration and short effective convexity?" I think bonds have positive durations, so shorting bond = shorting duration? Also, for the below question, why am I getting 2 different duration and convexity using different method...