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Hi @Josun You are correct: Eurodollar futures contract prices are a linear function of the rate such that they do not exhibit the "convexity" associated with bonds. Also, we can observe the fact that the contract changes by $25.00 per basis point, itself a constant delta. The author may be...

Learning objectives: Identify and discuss the categories of potential risks associated with the use of AI by financial firms and describe the risks that are considered under each category. Describe the four core components of AI governance and recommended practices related to each. Explain how...

Hi @xzbest Question 1: Is Model 2 more reliable than Model 1, because Model 2 is more likely to be rejected? What exactly is "reliability" in the specific context of hypothesis testing? I'm aware of its connotations in other contexts, but we had to send correction(s) to GARP when they used it...

Hi @kchristo Sure, your hedge fund can do that. But your hedge fund starts with collateral on the balance sheet (funded by debt/equity on the liabilities side). It sells the collateral which doesn't change the size of the balance sheet: cash replaces collateral. Then buy something back to...

Hi @annaleevance2000 I don't want to take the time to pull up the references (it's time consuming for me to attempt reconciliations in the content) especially given the basic nature of your question. Re: shouldn't the 1-tailed (for VaR) 99% confidence interval critical value be 2.576? No, if...

Hi @JesusZ Thanks, I must have forgotten that section: so indeed Grinold is just doing basically what I said. If the benchmark happens itself to generate alpha = 1.6 bps, probably he regressed each stock's alpha against the benchmark in order to determine each stocks beta with respect to the...

This is interesting, isn't it? At first glance, the repo does seem like anti-leverage. A repo is secured borrowing, so instead of (say) me borrowing unsecured cash from you, I secure the borrowing with cash by giving you collateral to hold. That doesn't seem like leverage to me, either. Except...

Hi @JesusZ I'm not sure if that's from T9 Grinold (in which case this is maybe helpful https://forum.bionicturtle.com/threads/p2-t9-21-3-refining-alpha-in-portfolio-construction.23783/post-88532) but you have it in T5. Is it a T5 reference? I will say there is a pattern precedent. If we step...

Agreed, if given the maturity (1.5 years), coupon rate (6%), face value ($100.00), you only have 3 of 4 inputs and not enough information to price the bond. You need the yield (single factor) or the spot rates (or the forward rates).

Hi @Garbanzo That's the final stripped coupon (yes, Tuckman does refer to C-STRIP here). So if it's a 30-year Treasury, you'd have one P-STRIP plus 60 C-strips where the "last" is a 30-year C-strip. Thank you for all of your posts/corrections/etc, I just haven't had time to carefully process...

Hi @VanBuren77 No, although it may seem that way (assuming you refer above to 1/10/15 as the "current" date). In the model above, $97.14 = $95.38 * (1+ 12.68%/2)^(54 days/181 days) such the dirty price would grow (at the rate given by the yield) regardless; e.g., if the coupon were greater than...

Hi @frogs This illustrates Tuckman's example, which he steps through in detail (I do not have time to re-draft his explainer). Briefly: Under this simple binomial, the call option either pays zero or $3.00. The replication goal is to find the bond portfolio with the exactly same payoff profile...

Hi @kchristo The t-statistic is given by: (X - X0)/SE(X) where X = is the observed statistic, X0 is the null hypothesized population parameter, and SE is the standard deviation of X's sampled distribution; aka, standard error. If it's a regression instance, we typically (but not necessarily)...

Hi @dtammerz I didn't create a matching version for P2, but it won't take me long ( i will try if i can catch any break in the forum here in the near term). Thanks,

Hi @frm_prep GARP's practice question 76 was deeply flawed, and required us to submit at least three corrections (informing revisions) over several years; the original author apparently did not understand CVA mechanics. At first glance, let me say: if your approximation generated 0.18 and if the...

Hi @mbbx5va2 Right, it's a common challenge. It's merely a convention that we quote the DV01 per 100 face amount. So if you just quote me, without context, "DV01 equal to $6.00" then I will assume "DV01 equal to $6.00 per 100 face amount" such that, see my link below (I just picked one among...

I was musing about this in our slack. Let me abstract to a relatable example. Let's say our null hypothesis is that market beta β = 1.0. Our issue concerns the one-sided test. My view is: If we observe a sample mean of 1.30, the one-sided null must be H0: μ ≤ 1.0 because the (only per...

Hi @yeng18950 Variations on the the exhibit below (from Malz in P2.T6) appear in this forum a lot; e.g., https://forum.bionicturtle.com/threads/p2-t6-309-default-correlation-malz-sections-8-1-and-8-2.6955/post-24169 Notice six columns, all for the same $1.0 billion portfolio value. But...

Hi @etzaros (thank you @lushukai ) I do understand that we may anchor the affirmative belief with the alternative hypothesis, but it isn't necessarily the case and I'm not sure that practice itself informs the directionality of one-sided alternative. In question 20.14.1., we have an (observed)...

Hi @alexwallace Today I took a fresh look at 6.13, and I finally get what they are doing but it's just an awkward (if not inaccurate) way to phrase the question. This concept is really based on prior years' Nocco & Stulz reading, so question 6.13 should be more like: 6.13.a. If the company...