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Thanks Aleks for the comments and tips :), and good luck everyone who are sitting for the exams this Saturday! P.S. I am wondering what is the shortcut for pricing option using binomial tree? RiskNoob

Hi Jeff, Sorry there is a hole in my cost of carry formula for annual compounding above - this is not true (F = S*(1+r - (1 + delta_a))^T) lease rate (delta, annual compounding) is an negative factor for the cost of carry model, so the correction would be F = S* (1 + r)^T * ( 1 + delta )...

Hi skoh, David posted an excellent article regarding the topic above few years ago, definitely recommended to read: http://www.bionicturtle.com/how-to/article/contango_backwardation_expected_future_price RiskNoob

Hi jeff-1984, It can be derived from annual compound version of the cost of carry (Hull Ch.5, continuous compounding) model - continuous version: F = S*e^[(r - delta_c)*T], where delta_c is lease rate (continuous compounding) - equivalently, the annual compounding version of cost of carry...

Nothing fancy though, and GARP only accepts the printed ticket(i.e. no smartphones). The exam will be held in 16 days, hope the preparation goes well, good luck everyone! :) RiskNoob

Let X be Company B's borrowing rate (on its own) in fixed-rate market. Let Y be the basis for the comparative-advantage argument. (I borrowed the term from Hull Ch.7, Table 7-4) That is, Y = (fixed rate for Company B - fixed rate for Company A) - (floating rate for Company B - floating rate...

Thanks ShaktiRathore for the explanation :) RiskNoob

Hi David, Yes, I agree with you, 203.3 was a great one indeed. Thank you. Furthermore it led me to review the following concept (it is a post from David from 2008, very useful thread :) ) Interpretation of N(d1) and N(d2)...

Hi ShaktiRathore, David, BT folks, I do have a question for deriviation of delta for futures. Let’s start with a definition of delta (for option) delta=dC/dS = N(d1), where C, the (present) value of call option, was derived from the solution of BSM PDE. So we can apply the same idea for...

Yes, I did not notice about chapters from Ong and Dowd (these chapters do involve VaR) which were assigned in 'Capital allocation' and 'Credit Ratings' in FRM P1 reading plan by GARP. I will take a look at these chapters to grab the basic concepts of VaR. Thanks :) RiskNoob

VaR is one of the P1 topics that I would like to pay attention in upcoming focus review - VaR is somewhat introduced in T1 and T2, however Allen Linda's chapters (especially chapters in T4) seem to be criticized quite a bit (usage of delta etc). I am wondering whether VaR basics mentioned...

Great! Thank you for the prize.:) My choice is credit towards BT products and I would like to accumulate it (with zero risk-free rate) for future redemption. RiskNoob

I agree with FeRMioN, and I could not find more answers from myself, so I search the web (thus I don't quality for this round): http://www.tylerstrading.com/mail-time-call-vs-put-spreads/ It says traders prefer to take positions for out-of-the money options for bullish/bearish spreads (e.g...

GARP's assigned readings are not structured efficiently (in terms of relevance and difficulty) but I found the readings are quite valuable so far - A lof of BT's practice questions's solutions are quoted directly from the assigned reading. So whenever I got wrong/stucked from the question, I...

Congratulations to the winners! :) I see that winners get to choose either iTunes or Amazon gift cards. Having a few additional flavors sounds like a good idea - How about gift/discount cards for BT products for those who are live outside US and/or do not interested in these gift cards. RiskNoob

I realized that my solution for calculating denominator has a hole - term still contains E[Rp]. I agree with you the latter approach is concrete and complete. Thanks for the correction! :)

I agree with Pedram we need more assumptions ... here is my first try with more assumptions: Let Rf be the interest free rate, Rp be the portofolio return and Rm be the S&P 500 benchmark return. We are asked to find IR, it can be express as calculate: IR = ( E[Rp] – E[Rm] ) / std (Rp –...

Thanks for the big hint, and here is my second try: From a vector space of random variables, and it can be shown that E(XY) is an inner product. And the norm of X is defined so that norm(X) = sqrt (E(X^2)). Then by CS inequality says: | E(XY) | <= sqrt(E(X^2))sqrt(E(Y^2)) Specifically, | E[...

Hi Aleks, As for the second one with the intermediate value, it can be said that around 62.5% of the variation of dependent variable can be explained by the independent variable, and the remaining percentage can be explained by the error term. Wonder whether I fall into the trap? As for the...

Thank you David for derivation of the correlation in terms of R^2. It makes sense now. Wish there were selection options for Like x 2 or Like x 3! :D