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ok pls let me know if my way of tackling this is wrong but here's the short-cut: since the DV01 formula is: (1/10,000) * (1/1+periodic yield) * (sum of time-weighted present value of cash flows)... and since zero-coupon bond is the one that gets impacted the most because it has only 1 lump-sum...

Just wanted to point out to a type in Greeks and Volatility questions set: assume initial delta of an ATM call option with strike at $20 and the BSM model based option delta is .5. If there's no volatility smile (flat implied vol) what is the option delta when stock price decreases to $19...

Hi David, just to clarify is this FRM part I or part II level? Thanks

I concur with PL from a logical point of view. From a practical point of view however, I will memorise that we'll have to use the one at maturity :(

any answers would be appreciated. Thanks

addendum: also how do you find 3.26 and 1.47. what is the formula to find the implied vol? many thanks

David, I am confused. In the FRM 2009 sample exam bootcamp answers, you write "if returns are mean reverting given annual volatility of 30% the implied daily volatility will be greater than 1.89% eg if autocorrelation is -0.5 implied daily vol will be 3.26%." You also mention that with positive...

Hi David, on the same question skoh asked, I understand the scenarios in the beginning of the year. With 50-50 binomial given, we either have 1400 or 800 and calculate debt and equity accordingly (though these scenarios happen at the end, so my logic tells me this should be values at the end...)...

Is this FRM level 1 type of question?

Atalon wrote: FV=100,N=20,1/Y=6/2,PMT=3.25, it gives us PV = 103.71 Conversion factor = 103.71/100 = 1.03 Shouldn't N=40 since it's a semi-annual paying bond? naturally if I plug in N=40 a different answer comes up.

For someone who has no background on these topics and minimum exposure to math (me), it does clarify it REALLY well - thanks David :)

Hi David, can you explain how the short hedger stands to gain from an unexpected strengthening of the basis? Can we assume that the hedger stands to gain from the relative strengthening of spot versus forward (or the relative drop in forward)? Since he's short, he will be buying at a lower price...