Search results

passed too! 3-1-1-2-1!

I think there was a question on wrong-way risk and exposure. You want to do somethgin with an option on oil and which of the below makes the wrong way risk exposure the highest: a. sell option to an oil refinery b. buy option to an oil refinery c. sell option to oil producer d. buy option to...

The paper was extremely difficult. What GARP seems to have done is to place the entire weight of the 80 mark exam on every topic that has gone untested in the last few years and on newly introduced chapters as well. Without exaggeration,.....the topics covered in GARP's sample exams over the...

OK I guess I get it -- the question says the default can occur only at mid-point so we have to weigh the 1st payment with the default probability and the second with no default probability (since if it were to occur it would have prior to first term)… Am I right in this line of reasoning?

what i am not sure of, is why we assign probabilities to the spread payments…. and if we do, why assign probability of default for the first term, and the 1 - PD for the 2nd term? any help would be appreciated! thanks ps. yep I also like this approximation although doesn't work in this case.

hi all, quick question. I don't grasp the impact of increased default probability (holding correlation constant) has on these 2 tranches. I'd think an increase would decrease the value of both, hence increase their value "at risk" not decrease. appreciate any explanation. thank you.

hmm… came across something odd… would be great if you can help in the last stretch David. 100 shares with price $50. daily historical mean and volatility of stock is 1 and 2% respectively. daily historical mean and volatility of spread is 0.5% and 1% respectively. calculate LVAR at 99%? in...

hi all, here's a question from FRM 2012: 1 million portfolio with equal investment in alpha and omega (annual). Alpha -- expected return and volatility 5% and 20% respectively. Omega -- expected return and volatility 7% and 25% respectively. Assuming 252 trading days what's the daily max...

quick question: once we find the volatility of surplus and multiply this with the deviate, do we then multiply this with the increase in the surplus or the total surplus (including the increased portion)? Thanks

Thanks David! You're awesome! :)

hi all, sorry for the "very basic" question... but here's a statement: "when the yield is higher than the coupon rate of an MBS, the MBS behaves similar to corporate bond as interest rates change" -- the statement is said to be true. here the "yield" is used to mean "interest rate", correct...

thanks shakti! :)

I understand the construction of this but am clueless as to where the .04% "random shock" comes from... can anyone explain? much appreciated. thanks

yep David, it does. Thanks!

thanks hamu4ok! wonderfully explained! :)

yep good catch, and that seems to be the point of that question apparently!

the answer is d. But thanks to your answer I think I get it now. They use the spread of 90bps right at the beginning. ie. N=6, i/Y=2.95 (Libor 5 + spread of 90bps % / 2 = 2.95); PMT = + 2.8 (100*5.6%/2); FV=+100 PV --> 99.19 I am not sure when to make the CVA adjustment (and how? do we add or...

Dear David, I’ve have struggling with the following question from FRM practice and past exams. Appreciate your kind help on this! On CLN valuation A three-year, credit-linked note (CLN) with underlying company Z has a LIBOR + 60 bps semi-annual coupon. The face value of the CLN is USD 100...

hi all, here's a question from FRM level 2 2013. 1-year zero-coupon bond with face value 1mil, and 0% recovery rate issued by company A. Bond is currently trading at 80% of its face value. Assuming excess spread only captures credit risk and that the risk-free rate is 5% per annum, the risk...

Hi David, thanks for the explanations. Based on past FRM exams, would one expect to get heavily tested on this subject? (treatment of subordinated debt acting as equity or debt under different scenarios?) Thanks