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Maybe I'm not seeing the forest for the trees, it's been an arduous day of studying, but the above solution says to solve for the unknown face value of the 2 year I need to know the unknown face value of the 10 year ... + F10 * DV01_10 * PC1_10Year... What am I missing ? Thanks for your time.

Hi @ami44 , Thanks for you reply, though I still can't see how to solve for both the 2 year face value and 10 year face value; the equations you listed each have two unknowns.

Hi, Can you breakdown how Tuckman arrives at the required face values of the 2 and 10 year swap rates to hedge the 5 year swap rate ? Thanks He sets out the hedge like so: -Face-2year*(DV01-2year/100)*Change_in_2year - Face-10year*(DV01-10year/100) * Change_in_10year - Face-5year...

Hi, Tuckman chapter 6 says the data in table 6.5 implies "hedging one short term bond with another will not be so effective as hedging one long term bond with another" Can you clarify this? I can see from the data in table 6.5 that a 1 standard deviation increase in all rates in the term...

Thanks @ShaktiRathore . So the return of the equity tranche tanked against the risk free rate?

Hi @David Harper CFA FRM CIPM , To me it sounds like these two statements are contrary: "The longer the maturity (T), the more discounting, and so the "further away" your principal, the more sensitive is the price to changes in rate (r)." And "is because (similar to discounting above), an...

Hi , In Chapter 1 of Meissner, he says regarding the financial crisis "The equity tranche spread increased sharply". Is this the spread between the equity trance and its next superior tranche or the most superior tranche? Thanks

Hi @David Harper CFA FRM CIPM and @Nicole Manley , While you are in the midst of updating your materials to include new content, can you post a table of contents for items like topic reviews on their respective pages? This way it's easier to know what is missing while we wait for the updated...

Thanks for the detailed reply. Is the reason the jumps don't average out because they are stochastic and not pro-cyclical?

Hi @David Harper CFA FRM CIPM , I'd like to recommend a minor edit to the study notes on "Messages from the Academic Literature on Risk Measuring for the Trading Books". At the bottom of the excerpt on exogenous liquidity, I believe including this line from the source will help add context...

@Thomas Obitz and @ShaktiRathore great answers. Can either of you explain the later bit of the section in question? "The effects of time-varying volatility on the accuracy of simple VaR measures diminish as the time horizon lengthens. In contrast, volatility generated by stochastic jumps will...

Hi, In relation to how the convenience yield on commodity forwards complicates things, Jorion says "As a result, the risk measurement of commodity futures uses Equation (11.11) directly...". He doesn't give a description of how to map the forward to primitive risk factors. Does that statement...

Hi, When talking about correlations between spot and risk free rates in chapter 11, Jorion says "...Therefore higher values of the EUR are associated with lover EUR interest rates". This doesn't sound right to me. Am I missing something or lower a typo and it should have been higher ?

Thanks for clearing that up.

Hi, "Describe how mapping of risk factors can support stress testing". How is the method described here a stress test ? According to Jorian 11.2.2 we perform the cash flow mapping, calculating a returns VaR for each of the terms, reduce the value of the "zero" for each term by the VaR and then...

Hi David, I get that clusters of exceptions are bad, but I'm confused by table 6.2.3 in Jorian chapter 6. Can you shed some light on it? Thanks.

Hi @David Harper CFA FRM CIPM , I'd be very appreciative if you could find time to look at this one. Thanks in advance.

Hello, I'm having trouble understanding much of the content (bolded) for this AIM. Can someone explain the following ? "The first desirable attribute is unbiasedness. Specifically, we require that the VaR estimate be the x% tail. Put differently, we require that the average of the indicator...

Hello, In the example provided from Jorian in the notes on VaR mapping, the present value of the cash flow from being long the Euro spot = 125 MM = (-)(-130.09 MM USD)(0.968 USD Bill Discount Factor). Can someone explain how this is the cash flow on the Euro spot ? Thanks

Hi @Pflik, Since VaR returns =|D*| x VaR(dY) we can solve for VaR yield VaR change in yield =VaR(dP/P)/|D*| Where D* is modified duration Check out this video of David's EDIT: I forgot to include that you can calculate Yield var by doing a historic simulation on the daily yield observations...