Search results

Hi @alexwallace GARP's solution solves for σ as percentage of portfolio size; you can do dollar variance, just like you are doing, but yours is just off by 1,000 as it should be sqrt($600,000^2*0.5%-$3,000^2) = sqrt(1,791,000,000) = $42,320; i.e., it's 1.791 billion not 1.791 million. Then your...

Hi @frm_prep No worries. For an individual position, of course EL = PD*LGD*EAD and this is arguably the most fundamental formula in credit risk. This is obviously a product and, although it is rarely mentioned, implicitly it assumes that PD and LGD are uncorrelated, ρ(PD,LGD) = 0, because if...

Hi @DenisAmbrosov I moved your question (it's the sort of question that's easy to search, and has been asked many times, for good reasons! We have several discussions on it). See above. Thanks,

Hi @alexwallace It's a lazy question that might penalize candidates who know too much. Ironically, those without preparation can probably just visualize to see what they want: the distribution has mean of +20 such that the left-side 5% quantile (0.050) is located at 20 - 1.65*10 = + 3.5, so the...

Hi @Gasthron My XLS above is just my replication of Malz Ex 7.2 and, for him, it's just a compound frequency adjustment: LN(1+3.50%/2)*2 = 3.47%. So, without checking the text, it looks like he assumes a flat 3.50% semi-annual yield curve. A flat yield curve is a common assumption with high...

@carlosfaria I'm told the CFA doesn't follow FX convention. Recently a colleague posted on our slack, "That is unfortunate CFA doesn't follow practical convention; if you lookup the cable, you are going to get GBPUSD 1.3205 (according to what I've been repeatedly told by practioners)."

HI @MRC2020 You may have noticed that above (https://forum.bionicturtle.com/threads/short-equity-t-long-mezzannine-t-correlation-impact.10203/post-48179) i happen to agree with you. As I compare Gunter's first and second editions, I notice that he switched the hedge funds' strategies...

Hi @ankit4685 per the title bar in the XLS, what I did there is implement Hull's Example 7.2. (10th Edition). See below. Source: Options, Futures and, Other Derivatives, John Hull (10th)

@DenisAmbrosov In this context, sure we can. A naked put is uncovered. In the p-c parity context, in addition to the naked put, we are just investing at the risk-free rate, which does not alter the payoff function (curve) yet satisfies the equality.

Hi @DenisAmbrosov (btw, is your quoted sentence from GARP's chapter or our note, out of curiosity? ... because it's a sweet comparison, to note that payoff shape of write naked put ~= write covered call). Put-call parity is awesome. I like to start with your c+K*exp(-rT) = p+S0, which to me is...

Hi @Susanna3890 according to GARP, the FRM exam itself will not (i.e., should not) ask questions directly about the Optional Basel readings. I hope that's helpful,

Hi @poojanmehta1 Yes, if we refer to a 1-day VaR, then we expect a 99.0% VaR to be exceeded 1.0%*250 = 2.5 days per year, and 1.0%*(250 *4) = 10 days per four years, exactly as you say. Clearly, GARP's text does not refer to a 1-day VaR, but rather to a 10-day VaR. We can further infer that...

Hi @kchristo You got it: Marginal VaR, signified with delta (confusing) as given by ΔVaR = α*β(i,p)*σ(p) where β(i,p) = COV(i,p)/σ^2(p) such that ΔVaR = α*[COV(i,p)/σ^2(p)]*σ(p) = α * COV(i,p)/σ(p). Thanks,

Hi @frogs Yes that is correct! This is all based in Dowd Chapter In both the normal versus lognormal VaR there is the same assumption that returns are normally distributed! The difference is due to whether arithmetic returns are normally distributed (what we call "normal VaR" or just "VaR") or...

Hi @jan molina No, this is VaR mapping; aka, risk factor VaR mapping. It is compatible with any of the three major VaR approaches (analytical/parametric, historical simulation, or Monte Carlo simulation).

Hi @kchristo I don't think you attached a spreadsheet, but this perceived confusion is generally due to the fact that, because the normal is symmetrical, we can solve for PD = N(-DD) or N(DD) depending on "which side" of the normal return distribution we are using; recall that the prices are...

Hi @Chanspace As we're not GARP, we're not really supposed (allowed) to say. But you were an Operational Risk Manager! It's going to qualify. Please don't quote me, but it definitely qualifies. If an actual Operational Risk Manager didn't qualify, then a lot of far more borderline cases wouldn't...

HI @wahahahaha Yes, that's what Gregory says: receivers of collateral may have different motivations such that they may or may not prefer cash as collateral. I think we can all understand why cash (as collateral) would be preferred: it is the most liquid asset! However, cash needs to be...

I guess you mean P[F(0,10,1)]; i.e., today's price of the forward contract. But, yea, it's called a repo carry: if the term structure is upward sloping and static, then you can buy the long rate and fund it by rolling over the short-term rate. In which case, the term structure embeds a premium...

Hi @FxReX80 These are each big concepts (eg, entire chapter on risk capital in FRM P2.T7). I would just offer one high-level perspective, if you think about a bank's balance sheet: assets (on the left-hand side) equal liabilities plus equity (on the right-hand side). Or, equity = assets minus...