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Yes As David cited above these risk neutral probabilities informs price P(1,1) and P(1,0), P(1,1)=q(970.87)+(1-q)975.61/1.0275=975.61-4.74q/1.0275=949.498-4.613q P(1,0)=q(975.61)+(1-q)980.3/1.0225=980.3-4.69q/1.0225=958.728-4.588q...

Hi If u consider forwards only instead of futures i think my point becomes more clear. If oil producer has monthly short forward contracts to sell oil at x then the variability of monthly oil prices is replaced with fixed cash flows of x which reduces variability of cash flows. In earnings the...

Hi Being short on option will reverse the sign of delta from positive to negative in case of call options and from negative to positive in case of put options. I think answer will get reverse of option d. Delta=dc/dS is partial derivative if we are short replace c with -c so delta becomes...

At node(1,1) the tree branches out to nodes (2,2) and (2,1),6 mnth rate at (1,1) is 5.5% that is up to 6% at (2,2) and 5% at (2,1) so we discount 1000 at 6% at node (2,2) ,P(2,2)=1000/(1+.06/2)=1000/1.03=970.87 and discount 1000 at 5% at node...

Yes Aims or Los are what constitutes Frm curricullum for exam are all in Study guide. Thanks

Hi Price of 4 yr zero=86=100/(1+s1/2)^8 where d(4)=1/(1+s1/2)^8=86/100 Similarly, d(5)=1/(1+s2/2)^10=79.51/100 (1+s1/2)^8*(1+1 yr forward rate/2)^2=(1+s2/2)^10 (1yr forward rate/2+1)^2=d(4)/d(5)=(1+s2/2)^10/(1+s1/2)^8=86/79.51==>1+1yr foward rate/2=sqrt(86/79.51)=1.04=>1 yr forward rate/2=.04=>1...

Yes Garp do mention some definitions of keywords in Los in study guide. I think to calculate should mean to know formula by heart. You can get meanings of this keywords on net and understand what this keyworfs really mean. When i gave the exam i memorised almost all the formulas baring few...

Hi Wherever its mentioned "to calculate/compute" its neccessary/mandatory to memorise formula. If its mention describe or explain i think memorisation is not that important than understanding i mean how formula helps in understainding the topic. So whenever term calculate appears in Los u can...

Hi According to my answer the accounting earnings do not consider hedging i.e gain and losses of futures/options, but cash flows do consider it. So accounting earnings which is not considering hedging shall reflect variability of oil prices but cash flows which considers hedging shall not...

Yes protective put is long stock + long put. It provides insurance from downside at the same time capitalising on upside for a cost the put option premium,which reduces the upside. Yes jayanti the above post is really handy for anyone taking the exam. Its a good effort. Thanks

Hi -180$ will be daily loss/gain on 6th june which shall add to total cumulative loss/gain till date of -600$ to get -600-180=-780$ of total cumulative gain/loss on 6th june. Thanks

Hi all, As i went through David Noted on market risk section of part II,i found that mainly three topics rules the roost, 1) Tuckman discusses Term structure of interest rates its theory,valuation etc interest rate models as Vasicek,ho lee and ICR etc. 2) Dowd discusses Var methods both...

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Hi I think its possible to map commodity forwards but the convinience yield complicated the things and it becomes difficult to mapping these forwards. Jorion cites the formula being used for mapping but didnt gives the mapping process does not mean that mapping cannot be done. Thanks

Yes u need to memorise formulas lile merton models. U need to memorise 100% for sure the formulas associated tightly with the topics explicitely mentioned in the AIMs ,please read carefully the AIMs because its from there the frm exam is set. If some formulas are associated with a topic...

Hi 2) Garch models incorporates mean reversion which better reflects reality/practice because in reality volatility does shows mean reversion,that is why it performs better job in explaining volatility. Garch model is the most preffered for this reason as compared to other models. 4) long run...

Hi if i may add my two cents, Consider an oil producer firm which is prone to oil price changes that increases variability in true economic value of firm due to variability in oil prices as value of firm is governed solely by future oil prices. Now if we hedge oil prices using forwards/futures...

Hi αP = E(RP ) − RF - βP(E(RM) − RF) => αP = E(RP ) − RF - βP(E(Riskpremium)+RF − RF) since E(RM)=RF+E(RiskPremium), E(RiskPremium)=.0525,RF=.0485 put these values in above formula Here .0485 is RF so we use it twice in last bracket in above formula. Thanks

1) yes agree with above ,d(t)=1/(1+spot rate)^t=>take 1/t th power on both sides =>d(t)^1/t=1/(1+spot rate)=>1/d(t)^1/t=1+spot rate=>spot rate =(1/d(t))^1/t-1 3) correlation r provides for strength of linear relatioship b/w two variables while adj R^2 gives strength of linear relatioship b/w...

Thanks Nicole Please let it accrue.