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Hi Quantman2318, I agree with you until here. I'm not sure I understand the following: Maybe the following is the misunderstanding, i'm not sure: At the moment of the delivery aqueeze the credit event already happened. At this point nobody will sell credit protection on that bond. So the fact...

Arkabose, as you said, the payoff from setttlement will be lower in case of a delivery squeeze. That means for a protection buyer the cds is less valuable, which means he will want to pay less for it. This means the cds spread will be lower with the possibility of a delivery squeeze, than...

Of course I can only speculate, but my impression is, that GARP is pretty liberal when it comes to accepting work experience. My feeling is, that everything that is a little bit quantitative and has connection to finance is accepted. So my guess is that all three descriptions are fine. I would...

Hi, in my exam the current topic questions were very superficial. I could've spent much less time with these papers. If I would do it again, I would just try to understand the basic idea in every paper, without going in details and thats it. Also remember that it's only 8 questions in total...

Thanks quantman and brian. I feel honored and humbled by your mentioning. I always enjoy the discussions with you, I wish the original poster the best of luck with the FRM. I agree with brian, do it on your own time scale. Thats the great advantage of the self studying approach. Of course the...

Risk free debt is the value of the debt, if no risk of default would exist. Value means present value here. In the simplest case of the debt being a zero bond with face value K it's K * exp(-r*t), where r is the risk free zero rate at maturity t. The value of the risky debt accounts for the...

In your example you get the forward rate from year 3 to year 4 by using the spotrate of year 3 and the spotrate of year 4. Nothing beyond year 4 happens here. Maybe the expression "The one year forward rate for year four" is a little misleading here, but it means here the forward rate from year...

Hi, is it possible, that you misread the table? 5.5% is the forward rate from day 491 to day 589. The next forward rate from day 589 onwards is 5.6%. So 5.5% is the rate to calculate the zerorate up to day 589.

There are definitively a lot of calculations in the Quantitative Analysis part of FRM I, but I would expect that to be reflected in the AIMs. A Describe, Interpret or Explain AIM should not ask for a calculation. But be aware, that many AIMs have a Calculate hidden inside e.g.: "Define joint...

Hi Kavita, I made you a drawing with the pdf of a normal distribution and a student t distribution with 4 degrees of freedom. I marked the 2.28% quantile for both distributions. As you can see, for the student t distribution with the fat tail, the same quantile is further away from the...

OK, I will not say anything about compounding again. That is the second time now that I'm surprised by continuous compounding. Of course actual Libor rates are not continuously compounded, but I guess Hull is using it out of educational reasons.

Additionally to my remarks above, I think I found an error in the example. If you look at the forward rates, than you see that they are calculated from the Libor rates with the formula for continuous compounding e.g.: 10.75 = (0.75 * 10.5 - 0.25 * 10) / 0.5 But the libor rates are not...

The forward rates are converted into semi-annual compounded rates, so that the interest amount can be calculated by the simple formula CF = ForwardRate * Notional * DeltaT Please note, that semi-annual compounding is chosen, because than the pay-frequency and compounding frequency are...

I'm not sure anybody is still interested, but for closure here the derivation of my above mentioned formula for forward rates. Consider two counterparties A and B which can both borrow at market rate (e.g. Libor). They enter into an Forward Rate Agreement that says, that A will lend B 1 USD at...

Addendum to my post above: I googled a bit and found the following resource http://www.legislation.gov.hk/blis_ind.nsf/CurAllEngDoc/F2D8CC374186C8A848257B98002D7C27?OpenDocument Which is very similiar to what I was saying above. If you have problems getting from one formula to another, just...

Just to be picky, the second equality is actually only an approximation, but I don't think that matters for the actual question. But maybe more importantly the above formula seems to assume an LGD of 1. Otherwise exp(-spread(i) * ti) is not the survival probability until time ti, or you work...

Hi David, now that you mention it, I remember that indeed forward rates with continuous compounding were mentioned somewhere and I studied them for the exam. Totally forgot about that, sorry. So I take back my statement above. I guess continuous compounding can sometimes make the math easier...

Forward rates are normally compounded in the frequency of the period length of the rate. E.g. a forward rate for the times 01.06.2017 to 01.01.2018 will normally be compounded with 0.5 years. I've also seen that called flat or simple rate or non-compounded. The consequence is, that you can...

I always thought that "the correlation increase in a crisis" is a very fancy expression for the fact that a crisis means, that everything goes down at the same time. I'm thinking along the lines of Jayanthi, what past crisis has shown us is, that the only hedges that are effective under stress...

Quantman2318, interesting view, never thought about it like that, but now that you said it, it makes sense. The value of the protection of a CDS is the CVA of a constant expected exposure of the amount of the CDS Nominal. The protection of the CDS is worth the annuity times the CDS Spread (if...