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They are different. Var (X + Y) is like taking the variance of 1 random variable Z which is defined as Z = X + Y. So it is a regular variance. Covar (X,Y) describes the co-movement between X and Y, whereas X and Y are separate and distinct random variables (they are not combined in any way)...

I'll look when I have a few minutes too! :)

If it helps, I remember reading something along these lines too!

Note, however, that the Meissner text has a few errors that made the concept difficult for many..... the posts here in BT will explain.

A search of equity mezzanine will identify some...

This is explained extensively under the Meissner related posts (assuming you are referring to the CDO Equity Mezz trade).

The figures in blue are the option values - I can't tell if they are American or European but you should be able to simply calculate the option values using the data that is provided. Take a look at the referenced reading as well.

ahhh, so a is the forward price (without the S component)

that is true - and that is exactly why it is included in the question. The exam will sometimes include irrelevant info to confuse the test taker....

"a" sometimes refers to alpha = the actual expected return from the asset but I can't see the entire question here. It may be irrelevant.

Congrats! Well done!

Fantastic perspective!

Sorry I can't be a bigger help.

I am not an expert with ICAAP but your characterization seems (to me) to be slightly inconsistent with my understanding of pillar 2 (supervisory review). As an example, under the standardized approach (credit), a supervisor can require certain inputs for LGD, PD, or EAD. These may differ from...

ICAAP would externally prescribed, by definition, right? Which, in my eyes, would place it in the realm of "regulatory" capital rather than Economic Capital. EC is strictly defined within the company and not externally to the company.

Max(S,K) = S + max(0, K-S) = K + max(o, S-K) = S + P = K + C