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Hi Short cash is equivalent to being short a treasury bill, its like if u short an forward u need to sell the asset in future u r short on asset similarly if u are short a t-bill u need to sell/give cash in the future in terms of face value which is equivalent to being short a cash. U can also...

Hi First calculate coupon which shall yield 5% value of coupon as 5% or .05*100=5 from the equation c/2*exp(-.5*.02)+c/2*exp(-.03*1)+c/2*exp(-.04*1.5)+c/2*exp(-.05*2)+100*exp(-.05*2)=100 The answer states coupon yield that would value bond at par using given spot rate curve. Solve for c it...

Hi Variance of each exposure=.03*.97=.0291=>std of each exposure=sqrt(.0291)=.1706 Variance of all portfolio of assets=corr*.0291=.25*.0291=>vol of portfolio=sqrt(.25*.0291)=.5*.1706=.0853 Var of portfolio=-z*vol of portfolio+El of portfolio=3*.0853-.018=.2546-.018=.2366 Var in...

I think if i am not wrong the condition Cov(xi,ei)=0(xi is ind vars and ei are error terms for ith observation) is what the consistency condition of covariance is also one of the most important assumption of regression,so its nothing but covariance assumption of regression. Thanks

Hi Yes Var can be used in performance benchmark. In performanve ratios we could use Var as a risk benchmark for eg excess return/Var gives return per unit of Var(risk) and compare performance of the funds based on this measure. Yes Var for the fund following a benchmark could be calculated by...

Hi I think acc to me u are already covering the prescribed text Miller through David notes etc.,so i think there should be problem if u cover gujrati it will only act as a supplement to ur studies and prep for the exam well. Thanks

Hi If there are no financial problems then u can quit job and focus on ur Frm studies,i think u should get a lot of time studying and concentrate on one thing and shall help u a lot. If u are doing a job that requires lot of energy and time leaving it shall save u these things and u can apply...

Hi df=n-k-1, so if no of ind vars(k)increase the df decreases. For given 30 obs i.e n=30 for k=1 ind var the df=30-1-1=28 ,for k=3 df=30-3-1=26 so df decreases with increase in ind variables. As k increases more errors in estimate comes of dep variable which is synonymous with decrease in df. A...

Hi As far as i can explain,Yes df seems logical when you want to know how much our estimate is closer to the actual value,as no of observations increase the mean estimates of the parameters in regression ass with ind vars becomes more accurate and eficient as std. Error decreases but introducing...

Hi Acc. To IRp Fc/Eur=F Fo be initial value and F be value of Eur after time t F=Fo*[(1+R(Fc))/(1+R(Eur))]^t now a lower R(Eur) i.e. Lower euro interest rate implies higher Euro values F(high Fc/Euro)(a lower denominator R(Eur) increases overall value F hence Euro) Therefore lower euro rates are...

Hi Yes at low yields pass thru as a whole(principal+IO) does not imply positive convexity/negative duration because of the prepayment feature of the passthru. Normal coupon bond exhibits negative duration at lower yields too but due to introduction of prepay feature(you can think of pass...

Hi Degrees of freedom df for a estimate of variable is the no of observations that goes into the estimate of variable minus the no. Of intermediate parameters that goes into its estimate. For e.g. In estimate of variance for n observations we utilise mean(1param) to estimate variance so n-1 df...

Yes when u say calculate/derive/compute you need to know the formula,i mean memorise it and apply them to situations where u need to insert numbers into the formula to calculate or compute the answer. You should know all important formulas by heart and should understand all the terms involved...

Really its not much anticipated and desired of a globally recognised financial risk authority. Garp is a respected organisation such careless mistakes are not expected from them,may be they are printing mistake or whatever they should take every pain to asuure that such mistakes do not happen...

Brian Yes topics do clarify once you read them again or see a more elaborate explaination of previously read readings,this has also been my experience. So its better to revise some important points before the exam and revisit topics you didnt understood at first go. Thanks

Hi Regarding ur first question low relevance does not mean the questions wont come from this topics,yes there are less probable chance of them appearing in exam than most relevance topics but still there are some chances of some question from these topics so why take chances itd better to be...

Yes Brian if the bond is not sold at the time of default by the cds purchaser then he can recover greater or lesser amount ,its his risk if he wants to retain it or not,if recovery increases its the reward of the risk he bears and he receives above par effectively i.e. The cash from...

Hi I think David said this in persective of the dealer that is he buys at bid price and sells at ask price. While if u look from the perspectibe of the investor he sells at bid price and buys at ask price. As a trade involves dealer and investor on opposite sides,saying either way is one and the...

Regarding first point, It seems logical that higher correlation makes equity similar to debt in terms of risk but equity provides higher return than debt therefore more favorable and a lower correlation means equity more risky than debt and provided same equity returns the debt becomes more...

Hi Here we are totally foregoing the effects of diversification which shall give the undiversified Var for the portfolio and undiversified Var is stressed form of Var that is we have stressed the portfolio by considering separate Vars and reducing benefits of diversification which shall give a...