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As @brian.field has pointed out, PFE is the maximum exposure at a given confidence level. It talks about the maximum amount that is under risk of counterparty default or any other credit risk. Therefore, it is a similar metric to VaR. Whereas VaR states the maximum amount of loss that would not...

Hi @Kavita.bhangdia Beta is a measure of Systematic Risk for Highly diversified portfolios as we have to measure Risk w.r.t the Market or Index Portfolio, therefore, Beta is the measure of covariance of the security wrt the Market divided by the variance of the Market Portfolio Let's start...

Hi @Maged, I think you can calculate both the CVA and the CVaR for Corporate/Retail Loans as well as any security based Counterparty exposure. In line with what @David Harper CFA FRM has pointed out, I would hazard that CVA is more of an Accounting Measure that tries to incorporate the...

Hi @Stuti You see, Illiquid Assets are a different ball game from what we are used to, like Liquid and Tradeable securities. The Author Ang as well as Constantinides feel that Illiquid Assets involve extremely high transaction costs per transaction as there are not enough counterparties on the...

Trade compression in simple terms is the replacement of the multiple trades/contracts with several counterparties with a single one, in technical terms, the various trades are compressed into one trade with a single counterparty, thus reducing the number of counterparties. Note that Compression...

No, the exam doesn't generally ask us to find the BINOMIAL INV. However, we can get around that using our TI BA II plus, use the Binomial PDF formula for 0,1,2,3 and 4 defaults and add them up, you get 94.92% (nCr p^r*q^(n-r)) which means, the number of defaults is more than 4, 5 in our case...

As a key, I assume Total Loss = EL+ CVAR where, for me the (Bonds Par Value - 0.001 Quantile) is the Total Loss (CVAR+EL) and therefore, subtract the EL to get CVAR; To be frank, previously, I got around this mess by assuming for Malz alone UL as the TL and hence UL = CVAR+EL and hence UL =...

Hi @Kavita.bhangdia This CVAR is one hell of a topic to understand, I think you mean Portfolio CVAR; In that case, of the portfolio has a correlation of one among its constituent credits, then either the entire portfolio defaults or doesn't default at all ( the words of Malz ) So, there are...

Heavens! We forgot a most important person here, who is the King of Bionic Risk Help Management and a future CRO material @ShaktiRathore !

Dear @Mkaim, you are impressive yourself, so why are you denigrating yourself? Chances are that you may get a better position or place in life than me. We are but instruments of Destiny and what we make of our Destiny can only take us so far. So, if you have a Startup, please don't hesitate to...

C'mon Brian, I sincerely feel that you are the sum of all of the gentlemen you listed put together:)

Don't forget @brian.field and @ami44

Hi @puneet, Can you tell me why is that you are assuming that the contract expires in September? I don't have the complete question. I thought that the Basis Risk deals with cases where the need for Hedge close out arises prior to Contract expiration. Of course, if the Asset to be Hedged is...

Very Interesting, @Mkaim, Possibly Crouhy refers to the impairment of Goodwill "as being Depreciated over time" or he might be referring to the current discussions by our standard setters to re introduce Amortization of Goodwill. It is interesting to note here that our Accounting standards...

Thanks very much @Nicole Manley. I will have the Amazon gift card please.

To add to Brian's explanation here, historically, I think it had to do with shipping. Say a Ship was launched from a Shipyard , there would be a series of marks on its Hull ( the front part called as the Bow ), showing the level upto which it can float and the higher we load a Ship, more and...

I do not know about the first two ( I have to check my references ), the third one is logical enough. It all has to do with the portfolio manager who does broadly two major functions 1. Selection of securities (Asset choice) 2. Proportion of his money invested in these two securities (Asset...

Interestingly, Let me also add that Adam Smith wrote the "Theory of Moral Sentiments" before "The Wealth of Nations" and he considered the first book to be his magnum opus seeming to imply that Capitalism should have Moral sentiments in order to succeed completely, which is related to your...

Sorry about that @brian.field, I didn't intend it to be on politics, rather on Financial History as well as my own introspection, I have slightly modified it to reflect more, the Historical aspects of the Financial ideas as well as some Macro Economics behind some ideas, not politics! I once...

Hope, the above serves as a worm's eye view of the Financial History of the United States:) as well as my introspection.:oops: Sorry for my lengthy introspection, in simple words, this is a tug of war between the Market, if left alone can create value or destroy as well as the Govt. regulation...