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For anyone who is interested, I came across an answer. Leverage exists because by investing $x in the tranche, I have a position that is equivalent to Δtranche * a position in the underlying index. Δtranche is the tranche delta; same concept as option delta.

Thanks ami44

Thanks for your reply ami44. Why wouldn't this method be classified as a historical simulation? We are observing empirical returns in the tail...

@David Harper CFA FRM CIPM , your answers here would make a great addition to the explanation of the solution for the Dowd practice question 71.1

I'm short on sanity after 9 months of studying, so way to go getting some of yours back.

Much appreciated, thanks for clearing that up. (Sorry to be picky, but there is a minor typo in your reply above :) long option should be followed by = not minus )

Thanks for clarifying how to arrive at the 1.04%; that had me stumped. I'm curious though, isn't ES supposed to be equally weighted for historic simulation ?

@David Harper CFA FRM CIPM , thanks for the star. I take it that means it is a typo in the notes and my understanding is correct?

Hi, The study notes indicate a long option is broken down (mapped to) a long position in the underlying asset of asset price * delta and a short position in the underlying financed by the amount of long position - option cost. I'm a bit confused here, as I don't see how being both synthetically...

It's conditional upon survival up to that instant in time.

I can't find a suitable place for this, so I'll stick it here. I want to express what a great tool set you guys put together between the practice questions (which often give me a stronger understanding of the topic), spread sheets, videos (especially your free Youtube ones), notes and forum...

This thread helped clarify my understanding: https://forum.bionicturtle.com/threads/sar.5879/ Also, re my confusion about 1- confidence probability of deficit of the amount of expected surplus - SaR, I realized both Jorion and David's examples are saying the same thing, just the phrasing in...

That's an interesting question. I would hazard an educated guess that you would use a default probability for the term you are looking for. So for worst case default over 2 years you would use the 2 year PD as an input. I don't think you can simply scale the 1 year. But this is just a guess.

Does anyone know of any summaries for these readings that could be beneficial ? @David Harper CFA FRM CIPM , can I interpret the absence of practice questions on this topic as a sign that it is less testable in your opinion?

Hi, I hate to ask such an opened ended unspecific question, but I'm rather lost by this topic (Explain the relationship between risk and alpha in hedge funds). Reading the source and the Fung, Hsieh paper didn't help clarify. #1 I thought the relationship between risk and alpha was pretty cut...

Less than a month to go. It's crunch time...and I still have a few readings left!

@David Harper CFA FRM CIPM , thanks for the great level of detail!

I went back over the notes and examples for LDA approach and the focus review and found nothing. I don't know where I came up with this notion. Thanks David and Brian.

Hi @David Harper CFA FRM CIPM , The Senior Supervisors Group paper describes a risk appetite framework that lays out the institutions approach to risk management in a very detailed way. Litterman describes a risk plan that sounds similar to the risk appetite framework (although potentially more...

If you still have the spreadsheet, I'd love a copy. The notation in this section is quite confusing. When Jorion defines Information Ratio he uses omega for TEV, but further down the page he defines omega_i as tracking error. Then a possible typo (I can't find errata for the text to verify)...