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I think Hull took it that it is better to exercise the American options just before the final Ex-dividend date. The option having dividends cannot be taken to be exercised at maturity as we have to first check if its possible to exercise it prior to maturity. Hull states that whenever...

Can you tell me where you got the above from? The second line seems to be correct but the first line seems to be a bit dubious. Shouldn't it be "As uncertainty grows so should OAS?"

Congrats Arka and Thank you so much Nicole! I would like to have the Amazon gift card please I would like to point out that this was a pleasant surprise for me, thanks for the encouragement. Regards Mani

Beautiful David! That so much expanded my horizons

Well I took that conclusion from Tuckman's reading in the GARP book, he says "to the extent that the model correctly accounts for the scheduled cash flows and repayments, the OAS is the deviation of the security's market price from the fair value" that means in this case OAS does not incorporate...

Hello all Can someone explain me the computations of the standard error of quantile estimator and coherent estimators as given in Garp material 'Market risk measurement and management' pp 15 to 18? I presume that it's not important from an exam perspective as BT videos and notes do not have this...

I don't know why, when I prepared for Part 1, Tuckman's readings were the most esoteric and challenging, I don't know of a very specific answer to this one as I don't have any experience in the MBS markets, however, I will try to throw some light on this that I understood from the GARP material...

In case of a FRA, we are finding both the Cash inflow as well as outflow, the LIBOR rates given are that of the LIBOR/Zero curve and by bootstrapping we find the rate for the interval, since the exchange is the exchange of the Actual LIBOR, the interest outgo is valued at the rate for the...

"From your underlying assets to be hedged are different", I assume that the asset you want to hedge is not the same as the asset for which the future is available. So we resort to cross hedging. The problem with this strategy is that there are two sides to it, First let us look at the Asset to...

Try to read Prt2 and Prt3, It seems that Dowd was right after all, he was referring to Artzner I think. Well, I was confounded by two not unrelated queries here, If Positive Homogeneity states that p(n*X)=n*p(X), then there was a problem with Subadditivity as well p(X+X)<=p(X)+p(X), that was...

Ah Yes, I get it, you were meaning the reduction in time as the maturity of the option approaches, bringing it closer to K, yes that's what I have meant in the BSM model. However, the risk-less portfolio that you have taken explains one side of the coin, what will you do when you are long...

The portfolio you are talking about is a risk-less portfolio, why did you take that specifically? and again, the PV of K decreases with the passage of time ( Ke^-rt ; as t increases Ke^-rt will fall ). I am assuming that you are taking two separate issues, the above formula is for valuing a risk...

I don't know if this suffices as 'intuitive' but since no one has replied I am telling you my understanding. As you know Theta is a measure of the change in the value of the option portfolio with the passage of time, for in the money put, the passage of time makes it all the more valuable as...