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That makes perfect sense. Jorion's explanation sounded like he used optimization to come up with the formula instead of using optimization within the formula. Thanks! Shannon

Hello, I was looking at one of the equations in Jorion and it looks there is some circular referencing and I was hoping you could clear it up for me. Equation 17.7 seems is supposed to help determin how much capital to give to different managers. However, at least one of the variables is a...

Hi everyone. This is a great thread. My understanding of this stuff seems like it is on the same level with Hend and ibrehim. Certain things just tend to somewhat contradict others: If it is a true sale, then the bank no longer owns the assets, but if it does then that amount must be...

Hello, In the study notes and the video, you mention that options risk should also be counted in the larket risk charge along with currency, commodities, equities and interest rates. I assume it is in the trading book, but that is never really stated. Also, are there general and specific...

Thanks! Shannon

That makes sense. Thanks! Shannon

Thank you. I know. I tend to over use the royal "you". Sorry about that. Now for the real question: So if we are only supposed to update our data set every month (in normative times) does this mean that we have the same VaR for this whole period? Same question goes for stressed VaR. In...

Hello, On p 93 of the op/integrated risk notes you say that one of the changes in treatment of tier 1 acpital is "minority interest" but you never really explain it. What do you mean by this? Thanks! Shannon

Hello, When you say "monthly updating" for market risk VaR, does this mean we only have to calulate this every month or does this have something to do with adjusting our model (data, etc) every month? Thanks! Shannon

Perfect. Thanks! Shannon

This is a little out of left field, but CPR is an annual rate, correct? So the 0.2% in month 1 means that if nothing changed (prepayment rate stayed constant) then 0.2% of the total loan pool would be paid off at the end of the first year, correct? Thanks! Shannon

Hello, I know this may be splitting hairs, but certain readings refer to type I errors (Neymon Pearson rule) as excepting a bad model and other readings refer to type II errors (VaR backtesting) as excepting a bad model. I know it all depends on what the null hypothesis is, but is there a...

Hello, I understand the idea of Hull's concept of netting: if a counterpaty defaults on one obligation it defaults on all obligations with that counterparty, but couldnt this concept be used to its advantage in a immoral way? For instance, lets say there are 10 contracts outstanding between...

Hello, In the notes (and video) you state that if there is no correlation between assets then the addition of that asset will lead to zero risk contribution. I do not think this is correct, at least from a simple mathematical standpoint. UL(1)=30 and UL(2)=40. UL port if rho=0 is sqrt...

Hello, I have read in a number of different places that equity prices are the main driver in KMV models. This may be an absurd question, but is this the same KMV that we have been talking about all chapter? If so, it seems like the PD depends on lots of things and I am not quite sure why the...

Sorry, I just watched the video before I wrote this so by "you" I meant I heard your voice saying it, even though it is from Canabarro. So A's right way risk would end up lowering E(a)s(a), because this would mean a lower loss rate as exposure rises (or less exposure as loss rate increases)...

Hello, You said that the cross gamma term for the other counterparty represented wrong way risk. What does your own cross gamma term represent? Since the counterparty's cross gamma term is -1 and our own term is +1 does this somehow mean that it represents right way risk? Its a bit far...

Hello, Is it just me or are there MANY iterations of this formula? I have seen the first term in the numerator written as Expected return on assets, expected value of equity and expected value of the assets. What is the proper formula? Thanks! Shannon

Hello, I appologize for the really bad question, but I cannot find a strict definition of what a "structural model" actually is. The term is used all over this curriculum, but I cannot find what differentiates a structural from a non-structural model. Thanks in advance and sorry again for the...

Makes perfect sense. Thanks! Shannon