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hi AUD/CAD is the indirect quote(is not direct quote where DC is quoted in terms of FC)where CAD is the underlying in terms of AUD. The CAD is the domestic and the AUD is the foreign, its Foreign/Domestic so that its reverse values Rf=2 and Q=2.4%. thanks

Value at end of t=18 months=max(St-105,0)-max(St-115,0) @St>115=>value=St-105-(St-115)=10 105<St<115=>value=St-105 so max value=10 So max payoff that can occur in 18 months is 10. Use discrete compounding it would had been given if continuous been used,its already mentioned annual compounding...

Hi, Yes #2 will definitely lower the returns due to negative beta but due to diversification its also lowering the risk of the portfolio so that determining reward to risk is ambiguous. In terms of reward to risk the attractiveness of the instrument can be different sometimes more attractive and...

Hi I hope all the exam takers are doing well with their preparation, Well wishes and A best of luck to All the FRM exam takers this November. May all the BT members pass and the pass rate is 100%. Have confidence and will and perseverance during the exam and you shall pass with flying colors. I...

hi, to find risk neutral PD use, FV*(1-PD)/(1+rf)=FV/(1+rf+s) =>1+rf+s=(1+rf)/(1-PD) =>1+rf+s-(1+rf)=(1+rf)/(1-PD)-(1+rf) =>s=(1+rf)/(1-PD)-(1+rf)...1 This is the risk neutral PD. At this PD i would recover FV*(1-PD) of the FV this is the credit risk captured by s the credit spread. get the...

Hi, Part 2 Questions shall not appear in part 1. If you saw these questions which are tough in part 2 sample papers then they shall not appear in part 1 exam but those questions that appeared in part 1 sample papers will only appear in part 1 exam. thanks

Hi , I think the question assumes continues compounding rather than discrete compounding, so going by this e^0.08*92/360*e^r*182/360=e^0.08*274/360 =>e^(0.08*92/360+r*182/360)=e^0.08*274/360 equating powers on both sides or taking natural logs on both sides, =>0.08*92/360+r*182/360=0.08*274/360...

Hi, at first site the 2 options rules out as the work of audit committee is to oversee financial reporting and disclosure http://www.investopedia.com/terms/a/audit-committee.asp and they play no role in operational risk. The third option i think the operational risk of each unit can be better...

Hi to clarify your doubts please go through these links: http://forum.bionicturtle.com/threads/lognormal-distribution.7115/#post-25872 http://forum.bionicturtle.com/threads/relative-vs-absolue-var.7246/#post-25826...

You are confused between default rates and correlation. And high value does not imply high IRR. I would think and understand the above results as follows: 1)a At high correlation b/w the tranches and high default probability: High default rate of probability implies high risky equity tranche...

Hi, According to me the stated advantage is relative to MA method where a large amount of data needs to be stored. In Garch you have same data requirement as EWMA except that there is an additional long run variance term which is needed to be stored. This long run average variance is constant...

Hi, a possible explanation i don't know if its 100% right but my point of view The option A is applicable when the merger is not yet announced that merger once announced the target Co share will rise in value while acquirer shares will decline somewhat but once the merger is announced there is...

@David I misread the phrase "the prevailing market price at that time", F0=25 futures 3m price and S=20 Two cases are possible either Spot price goes up or down for the commodity after 3m, i) If price goes down: S'=15 and i short the futures to sell at 25 then profit would be 10 and the loss...

Hi, I may like to pass some thoughts in addition to David if you don't mind. Such questions assumes that the returns for the divisions follow a normal distribution and whenever we calculate Var for a portfolio at least in FRM exam we assume normality assumption for portfolio returns. Seeing from...

also see http://en.wikipedia.org/wiki/It%C5%8D%27s_lemma#Geometric_Brownian_motion thanks

Hi I think you have not understood how we get to the formula please see how its derived above carefully, from the last step that i got on the derivation d(St)/St=[mean-.5*sigma^2]dt+sigma*dz =>d(lnSt)=mean-.5*sigma^2dt+sigma*dz is a GBM for a variable ln(St) with normal distribution...

Hi, you cans that Ln(St/S0) follows normal with a mean of mu-0.5*sigma^2 a distribution N(mean-.5*sigma^2,sigma). its similar to stating that Ln(St/S0) has mean return of mu-0.5*sigma^2 or that exp(ln(St/S0)) has mean return of exp(mu-0.5*sigma^2)....raising both sides to the power e ie...

As far as i know there are no reference materials given in the exam. You are just provided with the OMR and question booklet. Why they would give any reference material? thanks

Hi, 1)First arrange the returns from worst to best i.e. in ascending order, -3.0%, -2.9%, -2.7%, -1.1%,-1%,, -0.7%, -0.6%,-0.3%, -0.2%, 0.1%, now according to Dowd the [(1-CL)*n+1]th worst return is the Var for n observations at confidence level CL. Here CL=95% and n=100 therefore...

Hi(as per my understanding i am not sure on answer may be David may help :)) As per i think ETFs are exchange traded funds so if you are long ETFs you also own some equity or a portfolio of equity in the index. So during a flash crash ETFs would certainly make the crash worse as ETFs are sold...