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Hi David, This is a doubt relating to Question 5.03b ( your adds). Its stated that stock pays a dividend of 2% ( as a constant % of stock price) per year. In the solution you have directly taken the rate as 2%. Isn't this an annualised annual rate and aren't we supposed to take continous...

Hi David, You have got the solution to this problem as yield = 7.588 and concluded that solution manual is incorrect. However I can see that you have equated the Cash Price ( Bond value ) as 100 while the problem explicitly states it as 104. So PV of Cashflows should be equated to 104 and...

David, As always you fascinate me with your solutions. You are just too good. Now that concept is crystal clear as always it happens once u clarify. I missed on the point that duration is a wtd average of tTIMES the payments are made so the largest cashflow would be more distant in time...

Hi David, In your solution to Hull 3.16b where to tail the hedges you have replaced size with values , i am not clear where you are getting the following values to multiply with the Purchases 0.7* 200000 - To arrive at Size of Position ( where does 0.7 come from?) $1 * 40000 - To arrive...

Hi Rahul, Thanks for your assistance however i tend to disagree with you as yield is a rate given externally by market while the coupons on your bonds are fixed. So for eg you wud receive 6$ every year..this would be fixed. Now if you use a lower yield to discount your this fixed coupon...

Hi David, Kindly let me know how to solve this question ( Hull question 1.25 ) Suppost that $ sterling spot and fwd xchange rates r as follows Spot 2.0080 90 day fwd 2.0056 180 day fwd 2.0018 What oppurtunities are open to arbitrageur in following situations a) A 180 day...

Hi David, Can you pls clarify the difference in these 2 concepts ( Hull pg 35) To my understanding there seems no distinction as Limit order at $30 gets executed at that price as well as Stop order to sell at $ 30 also gets executed at that price. Also to add to my confusion is the...

Hi David, I have got to understand the Yield Curve concepts and would like to have clarifications on following matters 1) For a Pension Fund invested in long term bond an adverse factor is upward shift in Yield cuve ( Source BT study mat pg 115). Can you pls elaborate on this. 2) Is...

Thanks for an amazing detailed explanation David. You are absolutely non miserly in terms of your words when it comes to explaining things and the enthusiasm with which you explain is quite adorable. Ever since i have been able to delve into your analytical thinking even i have started...

Jorion Handbook Example 13.3 FRM Exam 2006 Info about european call option. Time to mat = 2 yrs; continous risk free rate = 4%; continous dividend yield = 1%; N(d1)= 0.64. Calculate delta of this option. Answer : Delta is given by e^(-rt) * N(d1) = e(-0.01*2)*0.64 = 0.63 Doubt 1)...

Jorion FRM handbook question No 1.9 states the following Higher Duration is associated with Physical characteristics that push payments into the future i.e 1) Longer Term 2) Lower Coupon 3) Less frequent coupon payments 4) Lower Yields which increase the relative weight of payments in...

Hi David, This is regarding the Unexpected loss discussion in video 4e. where you have drawn the diagram depicting Normal distribution of Loss. Kindly clarify on the following Doubts 1) What is been potted on X axis and what is been plotted on Y axis? 2) If the % of loss is been shown...

Hi david, Thanks this is crystal clear due to your link on mean reversion and due to the playing in the excel..Hope GARP allows us to take your excel sheet in exam and we would all come with flying colours... ;-P

I am overwhelmed by the answer you reached (which i had deliberately kept in dark to notice your method of arriving at the correct answer) Bingo the answer is just as given in the source which happens to be from Jorion Handbook Chapter 14 Example 14.1 Time Scaling. Knowing that the...

David, Thanks a lot for the amazing explanation. Your Clarity of thoughts is amazing. 1 more question. Is this kind of question expected for level 1 exam as i would be appearing for the same in this Nov. :-) Thanks & Best Rgds Amit

How to Solve this problem? Consider a portfolio with a one-day VAR of $1 million. Assume that the market is trending with an autocorrelation of 0.1. Under this scenario, what would you expect the two-day VAR to be? Choose one answer. a. $2 million b. $1.414 million c...

Pls consider the following question The monthly VaR of a fixed income portfolio of treasuries is $1,000,000 and you believe that the Vasicek interest-rate model offers a good representation of the evolution of interest rates. The annual VaR is: Choose one answer. a. Likely to be higher...

Pls consider the following question In a two-position portfolio consisting of positions X and Y, it is found that the marginal VAR of X is greater than that of Y. Using this information, which of the following is most likely to be TRUE? Answer is Increasing the allocation to: a. X and/or...

Kindly elaborate on the concept of Floaters and Inverse Floaters and pls clarify on following question Q) Suppose you have a position of $100 million in the instruments below. Each one has a maturity of 10 years. Which instrument is most likely to have a DV01 that exceeds the DV01 of a...

As i understand portfolio insurance is basically a situation where you create position Underlying Instrument + Cash or deriv that creates a floor val for portfolio. Pls explain how does the following position create the same 1) Creating a synthetic put position with Index futures contracts...