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Hi I dont think there is any particular simple method to calculate variance of LGD,i mean there is no simple formula from which u can get LGD variance as u get Variance of EDF. LGD estimation is a difficult exercise,i think its determined empirically,assuming some beta distribution there is no...

Hi 1)Translation invariance P(R+c)=P(R)-c where P() is risk function that is risk of cash + position in risky asset P(R+c) is =Risk in risky asset-cash. E.g. Var of say a portfolio with R=$10 in risky asset and c=1$ in cash ,If var of risky asset is $2 then max portfolio can lose is $2-$1=$1...

Hi Yes definitely you should read part I readings that u think u missed but part II readings are targeted towards them. You do not require to read exotic options and mbs if they are not in part ii anymore but if u feel that to understand some reading of part ii u should know for e.g. Mbs then u...

Here are some u can refer to: 1) http://www.torontopubliclibrary.ca/detail.jsp?Entt=RDM2715692&R=2715692 2) Lowenstein, Roger. "When Genius Failed: The Rise and Fall of Long-Term Capital Management"(2000). 3) Bernstein, Peter L. "Against the Gods: The Remarkable Story of Risk" (1996)...

Hi Yes the 10 yr bond has higher duration as compared to 4 yr bond so that former is more sensitive to interest rate and therefore is more exposed to interest rate risk. Despite having same notional amount having different durations makes their risks differ from each other. Thanks

Hi Jayanti, Yes David would be talking about this in relation to derivatives like equity options/futures where there are position and price limits,these limits are not so restrictive in case of equities. Equities do would have position limits and price limits but should not be as typical as...

Hi After 1 month PriceU=110 and PriceD=90 After 2 monrh PriceUU=120,PriceUD=100=PriceDU,PriceDD=80 Exp value after 2 month=mean=pU^2*PriceUU+2*pU*pD*PriceUD+pD^2*PriceDD=.3^2*120+2*.3*.7*100+.7^2*80=10.8+42+39.2=92 Sd=sqrt(.3^2*(120-92)^2+.21*2*(100-92)^2+.49*(80-92)^2)=sqrt(168)=12.96 Thanks

Yes jayanti The constraint should be alpha+beta<1. Thanks

Carlos What r u referring to? Hedge ratio =correlation*spot stdDev/futures stdDev but correlation is calculated from hedge ratio by manipulating above equation as correlation=hedge ratio*futures stdDev/spot stdDev so hedge ratio has spot stdDev/futures stdDev is not correlation perse we obtained...

Hi jayanti, For infinite series weights just put limit m>>infinity in formula w(i)= lambda^i-1*(1-lambda)/(1-lambda^m) so that lambda ^m=0 as m tends to infinity. Thus for infinite series our formula for ith day weight is w(i)=lambda^i-1*(1-lambda), so w(1)=.94^0*(1-.94)=.06 or...

Hi, Previous m days weights are exponentially decreasing in order lambda^0*k,lambda^1*k,lambda^2*k,..,lambda^m-1*k for m days right from previous day to mth day. Now all weights should sum to 1 implies...

Yes Lgd is squared and edf is not squared in the ul formula UL=AE*sqrt(EDF*sigma(LGD)^2+LGD^2*sigma(EDF)^2) Thanks

Hi It should be .75 only. Optimal hedge ratio=Cov(spot,futures)/Var(futures)=correlation*stdDev of spot*stdDev of futures/stdDev of futures^2=correlation*stdDev of spot/stdDev of futures Note above correlation is Cov/std Dev of spot*stdDev of futures its not stdDev of spot/stdDev of futures. Thanks

Hi Square root rule assumes iid returns that is returns are uncorrelated no autocorrelation at all. If sigma is estimated daily volatility then over next T days volatility just scales to square root of time under SRR so vol(T) under srr is sqrt(T)*sigma. While if we assume mean reversion of...

Hi Brian, Its alright if you feel like its appropriate to give exam in Nov than May but the decision shall delay your frm. Nevertheless its your decision. Thanks

Hi Yes Wolds theorem is a newly included topic ,since its there in the frm curricillum it has chances of testability. What are chances high or low? Its somewhere b/w nobody can guess whether it will be tested or not it can be tested and cannit be but there are chances that it will be tested...

Hi Yes the question booklet will itself contain blank pages to do all your calculations and other rough work. No other extra blank sheets are provided as far as i know. Thanks

Pls visit: https://forum.bionicturtle.com/threads/frm-fun-11-do-we-really-need-all-three-durations-lets-settle-this-now.6012/#post-18668 Thanks

Hi Please refer: https://forum.bionicturtle.com/threads/frm-part-2-vs-part-1.6690/ Thanks

That means its neccessary to memorize this and this answers your question. Thanks