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Hi Fellow Risk Managers and Aspiring Risk Managers The most recent event that has highlighted the importance of sound risk management at Banks is Archegos Capital. It was a classic case of Banks not focusing too much on Concentration, Collateral, Correlation and Counterparty Risk The other one...

<QUOTE>In this way, I think the CDS spread refers to the credit risk of the reference (aka, the underlying referenced by the derivative contract) while the CVA prices the credit risk of the CDS counterparty (aka, the derivative counterparty), and interestingly, they may not be independent. I...

Oh dear - Looks like I had explored this in greater detail before and I just now remembered - Still It is interesting to see that the clock has now turned a full circle and I am vindicated to some extent by hints of the same in the CFA material. ;) Anyway, David, I would appreciate your...

Hi @David Harper CFA FRM Good to contact you after a while. I had a question which may be relevant to the folks studying credit risk here as well, I had this after I was studying for the CFA While valuing CDS, we have something called the CDS spread - is this equal or equivalent to the CVA...

@gargi.adhikari This is just based on log transformation, it is not strictly equal of course, I presumed that the authors assumed a transformation of the original formula to arrive at that (you may refer my first quote above) , @David Harper CFA FRM can correct me if I am wrong. We know that...

Hi @gargi.adhikari The solution is confusing because the formula that you have highlighted is not the estimate of alpha but is the estimate of long run Gamma of the equation in \[ \gamma V_L \], where: we try to find the estimate of the long run Variance as V(t) as \[...

Hi @Marco.Musci My intuition is purely theoretical, but let me explain it in how I understood the metric Gregory states that the implied default probability is provided by the following equation: \[ F(u) = 1-\exp(-spread/(1-recovery)*u) \] And as you can observe from the above formula, you...

Hi @Shadma Can you be a bit more clear? Which formula are you referring to in CVA? The value for CVA is just: \[ (1- Recovery Rate) * \Sigma_{i=1}^m DF(t_i) * EE(t_i) * PD(t_{i-1},t_i) \] So which part are you referring to?

Hi @Nicole Seaman Thanks very much, I would like the Amazon Gift card please Thanks

Hi @[email protected] , Thanks for bringing this thread up again, yes, it was one of the best discussions that we had in these forums and brings back fond memories:):rolleyes:, in fact I had been wanting to answer your question a bit earlier, but paucity of time stopped me from doing so A...

Hi @gargi.adhikari With respect to one above, for very small changes in yield, the convexity adjustment is not required as the majority of the change in price is explained by the first derivative Delta B/(B) = - (1/B) * dB/dY *Delta Y where the Mac D is explained by -(1/P) *dP/dY With...

Hi @Carlos Madrid The Market value of the Bond is higher than the Face value which suggests that the Coupon (6%) should be greater than the YTM. Here the FV should be 100 as you are redeeming it at par. And the PV should be -103.75. So, PV = -103.75; FV = 100; PMT = 3; N = 4 which gives the YTM...

Dear Nicole Thank you very much! I would like the Amazon gift card please :) Thanks

Hi @karim David has used the following formula: (1/YTM)*(1-(1/(1+YTM)^t)) This is a shortcut for finding out the Modified Duration on Par Bonds where the coupon equals the Yield. It is in fact a shortened version of the formula that you have pointed out. Modified Duration = Macaulay...

Hi Nicole! Thanks very much! I would like the Amazon Gift Card please :) Thanks Mani

P.S Please take my explain in addition to the great note that @David Harper CFA FRM has written

Hi @[email protected] 1. I am going under the assumption that you are not able to find out the value of the Bond in the second node (t = 1), you can arrive at the value, not from $925.21 but from the values at the right 2. You have to go from right to left to arrive at the value of the Bond at...

Hi @gargi.adhikari I am not completely sure on this, members who are more mathematically inclined can add further: E(y_t|ohm_t-1) = Theta*e_t-1 in a MA(1) process E(y_t|ohm_t-Q) = E(e_t + theta1 *e_t-1 + theta2*e_t-2 + .........thetaQ*e_t-Q | ohm_t-Q) = E(e_t|ohm_t-Q) +...