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Hi Some questions as cva calculation for two counterpartys as A and B would come the formula cva=Ea*sa-Eb*sb where Ea and Eb are exposures faced by A and B wrt each other and sa and sb are their mean loss rates,this type of question is highly common involving two counterparties where you would...

Hi Yes in 90% CL for 100 observations we have no of exceptions>10 to correctly reject the model ,if 5<no of exceptions<=10 we incorrectly accept the 95%Var model at 90%cl leading type II error and if 1<no of exceptions<=10 we incorrectly accept the 99% model at 90%cl ,from above its clear that...

Hi See the mettalgesellschaft case it illustrates when short roll over positions are taken in oil futures during contango negative roll/losses during roll over resulted which caused huge margin calls and subsequent bankruptcy,when in fact expectation of conpany was of backwardation which would...

Hi Type I error is equal to significance level=1-CL. Our hypothesis test for model is:Ho:model is correct and Ha:model is incorrect 95% model has type I error probability as 5% is more probable to reject model(reject Ho) than 99%model whose type I error is 1% . It follows A and B and D re...

Hi Yes Dividend will impact price of european put by increasing its value. Yes dividend are certain and known in advance therefore should be discounted by risk free rate,dividends lowers value of share by there present value. Thanks

Hi Yes these type of questions shall not appear in the exam where its unclear what the input like duration is,evrrything required for the question to be solved would be explicitely mentioned in the exam,i have not seen such type of questions where its unclear about some inputs, every input...

I think its standard US treasury bond would have fixed yield and term implying an approximate duratiin could be obtained by multiplying term of 10 yrs with a fixed factor. Thanks

Hi The practice exam are representative of actual exam,i dont think they are different in terms of difficulty but yes its possible David a little more tough so that it provides you with enough practice so that you can handle less difficult exam quesrions with ease. Thanks

I dont know abt the Duration, The 1 day volatility is, σ(V) = [market_value * duration * yield volatility ] = 10,000,000 * 7.0 * 0.00074 Its just scaled by sqrt(10)=10^.5=3.16 to get volatility over 10 days as σ(V) = [market_value * duration * yield volatility *(10)^0.5] = 10,000,000 * 7.0 *...

Hi For any sample default rate is X/n where X is no of defaults in a sample is binomial variable with std deviation sqrt(np(1-p)) ,p is popln/sample default rate. These sample default rates X/n will be according to CLT will be normally distributed with mean as popln default rate(E(X/n)=np/n=p)...

Hi, The population std deviation is popln default rate*(1- popln default rate) here we are using tstatics and sample std deviation=sqrt(.15*(1-.15)) as proxy for popln std deviation. Also SE for sampling distbn=popln std deviation/sqrt(sample size)=sqrt(.15*.85)/sqrt(60) so tstat=sample default...

Hi, As i went through the notes of David2013 on Investment and Risk Management I noticed following major topics: 1) Jorion discusses the portfolio Var concepts as marginal,component,individual Var,SurplusVars,portfolio Var etc. 2) Bodie discusses the portfolio performane measures as Sharpe...

Hi Yes Basel is covered and is a major topic of FRM,CFA has nothing about Basel is even not mentiones in cfa curricullum. If you want FRM you need to give both parts I and II. FRM covers Basel in detail and is important topic.you need to first give and pass part I then only u can give partII...

Hi Yes the exposures are identified and measured in parallel to knowing what instruments could be used for hedging those exposures,we are not actually hedging those exposures yet but have identified what instruments could be helpful to do away with risk,the actual implementation of hedging...

Hi ES always calculates average of 5% of tail((1-CL)% in general) or avg of worst 5 losses for 95% CL. So ES of (99+98+97+96+95/5)97$ is valid. Var has 3 valid definitions as 5th worst loss/6thworst/avg of above 5th and 6th worst losses.(please refer to GARP 2015/2014 Sample papers to know...

Hi RiskAversion=IR/2*activeRisk=.5/2*5% it depends on convention u can take 5% or simply 5 as active risk in denominator. In end all other Risk Aversion are calculated based on a convention. If 5% convention is used RiskAversion=.5/2*.05=5,IR for investot with active risk 10% and same risk...

Yes there is errors in the new values of N(d1) and N(d2) with the dividend the resulting value of d1/N(d1) is increasing?? Which should be decreasing due to dividends. d2 shall also change with dividends, assumming a constant d2 is absolutely absurd then.how can the question assume unchanged...

Hi Please google for Frm2015 study guide all Aims are contained there. https://www.scribd.com/mobile/doc/249095361 Thanks

Hi So which is stock price does not change after day 1 as per question and rest of inputs changes as per question which accordingly changes N(d1) and N(d2). Here we are not considering the effect of dividends only but also other inputs as volatility,thats why there is net increase in option...

Hi It will be good if you can memorize these two formulas duration and convexity of zero coupon bond,first these are simple to memorize ,second they provide great insights.i would advise even if they are not in Aims to memorise them. Thanks