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I think you are talking about Merton model for computing probability of default. Please refer here https://forum.bionicturtle.com/threads/merton-model-a-summary-of-the-issues.5646/ For the short answer we use Mu - Sigma^2*0,5 because this is similar to d2 of Black-Scholes option pricing...

Thank you sir for such encouragement to all FRM Aspirants including me.. Everyday is an opportunity to learn something.. In life there are no shortcuts to success.. Shailendra is a winner.. :)

In a perfect hedge you lose nothing and you gain nothing.. Its rare though in real life.. Even though future and spot prices move together.. Basis risk might factor in and make the hedge nearly perfect.. Doing nothing according to your argument means you will lose definitely if price falls...

Not really if that were the cases basis risk would not exist.. Basis at expiration = S(T) - F(T) Though hedging might not always bear fruit if it converges eventually.. But the risk always exists.. SHORT HEDGE BASIS SCENARIOS Spot price rises more than futures price rises or Spot price falls...

You must have noticed that key difference between first and second scenario is that price is fixed in scenario 1. So whether prices of coffee move up or down we are gonna sell at 3$ . As a seller you will be fearing an increase in coffee prices above 3$ , so the coffee producer might buy futures...

It's really great to hear my contribution has helped the community.. Though all I did was compile existing material into flowing PDFs.. If I learn copulas I will definitely learn further from your worksheet.. :)..

Congrats man.. This is solid proof that a person with no finance background can just as well pave his way to success as long as he works hard and patiently assemble the key building blocks.. Really awesome to hear and amazing to pass both parts singly.. Have a blast man:)

Paul Wilmott introduces Quantiative finance looks neat...

Thank you for the suggestion.. I will come back to this a soon as I am done with the building blocks... And yes Stochastic Calculus isn't covered in any of these..

Here I make a checklist for getting into Stochastic Calculus.. After consulting my bro who is Math Ph.d this required reading is what a person who want to understand stochastic calculus 1. Precalculus Mathematics in a Nutshell- Geometry, Algebra and Trignometry by George F. Simmons 2. Calculus...

Additing to @ShaktiRathore explanation.. The effect of diversification in a two asset portfolio or even three is that if the Correlation between assets decrease you can reduce the overall risk and also when the assets are negatively correlated it is actually possible to eliminate risk...

Thank you Nicole.. I will be careful next time :)

Thank you for the compliment @David Harper CFA FRM .. I was first exposed to Derivatives a few years ago and it was a fun read but I couldn't grasp how to model a payoff for a option strategy.. It just wasn't straightforward except for plain vanilla ones.. Once I finally figured out I decided...

Now that you mention it.. It certainly does .. I haven't fully grasped all the LO for Part I of FRM... But you are right.. It should ideally be categorized under Foundations of Risk Management..

Yet again I found a set of notes that I had compiled from various sources and summarized the Portfolio Theory concepts within 17 pages.. This covers the important aspects of Portfolio theory including the various Modern Portfolio theory variations explained such as Efficient Frontier, CAPM, APT...

I have applied the concept in a excel worksheet to model weekly stock prices and stock returns for Starbucks. @David Harper CFA FRM .. Please let me know if this is an ok approach.. P.S. By using Oracle's Crystal Ball tool I got the interval prices as 48 $ and 80$ at the 95% Confidence...

I see:p.. I was going through brooks mat so I replied..

here are excel sheets part of the resource.

Ch 12 of Brooks is about limited dependent variables.. Ch 13 is simulation methods.. Till 2015 pachamanova dealt with this topic and that was still just chapter 4 titled simulation modelling.. So if Bt says ch 12 then you are right.. It's BT's typo.. And the learning objectives are correct...

Bookmarked.. This tattoo though.. http://blogs.reuters.com/felix-salmon/files/2011/05/Tattoo.jpg Thank you @David Harper CFA FRM for that wonderful link... I will read the full account of the Formula that killed Wall Street.. Looks really innocent though to have caused a major collapse...