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Hi all, Here's the question from GARP credit risk book: Paul sells a put option on HRTB stock with time to expiration of 6 months, a strike price of $125, underlying asset price of $98, implied volatility of 20%, and a risk-free rate of 4%. What's Paul's CP expo in this transaction? a. 0 b...

writing on external data issues, chaudhury mentions reporting bias. specifically he says, "while the compilation of truncation point used by an external data vendor is knows (so far so good), truncation level of loss size above which loss events reach the public domain is not knows" (huh?!)...

Hi Uzi, Firstly, this question is a continuation of the first question in the set. So you'll have to assume that a) the total notional is $50mil b) that the defaults are occurring as stated in the 1st question. I may be wrong but here's my take on it. The way I see it is that "insurance"...

conceptually, my 2 cents: senior tranche gets the value of the firm unless losses eat up the junior tranches. If that happens it'll eat into the gains accruing from the risk free investment (V). How much will it eat into it? as much negative distance there will be between K and V, provided that...

shardasb are you sitting for november part II?

good to know nicole.

Omission: question 329.2 does not include the sigma value...

Thanks Alex and Roshan - it's crystal clear now

can anyone show me the hp12c calculator computations for the IRR calculation for 313.3 please? Much appreciated - thank you.

can anyone help with 213.3? I can't figure out how to get the N numbers from the z-table for the life of me.. thanks!

Quick question about 311.2: how do you look up N(-1) 2% and N(-1) 99.9% from the z-table? (both are in the numerator in the equation) I couldn't calculate .93955 thanks!

Hi David, Hope you're doing alright - me panicking a bit with 4 weeks to go and having only (and mostly) covered credit and market risk books.. Am hoping the other books are somewhat less intense.. I understand the following -- please correct me if I make a mistake in those points: - as PD...

Hi David, with regards to 307.2... I'm wondering if I confuse 2 different things for the same.. the probability of a joint event of survival through the first year and default in the second year should be e^(-lambda*time) * [1-e^(-lambda*time)] first part shows survival, second default, in...

David, a small question - I am a bit confused as to when/where we prefer the following formula: future value - debt / volatility*future value is this supposed to be some sort of a general approximation to find the DD? Thanks

as usual very lucid explanation David. a BIG thanks! :)

my take on #2 is: CLN-issuer is the protection buyer in the sense that protection seller assumes counterparty risk. This obvious point is critical in understanding what happens in a default situation. The seller get above normal interest rates for assuming this CP risk and also, because in case...

Hey David, Here's a question I ran into from 2007 FRM part II (age of antiquity): MBS negative convexity implies: 1. the value of the MBS decreases more than the value of plain-vanilla fixed income as interest rates rise. 2. the value of the MBS decreases less than the value of plain-vanilla...

Hi David, This may be a very basic question but am confused.. I have the following question from Jorion's handbook edt 6 (21.3 FRM question exam 2002, page 506): A risk analyst seeks to find out the credit linked yield spread on a BB-rated 1-year coupon bond issued by a multinational. If the...

Hi David, hope all's well. I am confused with reg. to unexpected loss formulae. I have 2, namely from Jorion and Ong. Ong's is fairly straight forward: AE * sq.root of [(EDF*var of LGD) + (LGD^2 * Var of EDF)] Jorion's is AE * sq. root of [(EDF*var of LGD) + (LGD^2 * (EDF) (1-EDF)] seeming...

I claim to know nothing about finance, or FRM. Occasionally I may blabber some incongruous formula or ask a stupid question :)