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Std Dev (p)=sqrt(w1^2*stdDev(R1^2)+...wi^2*stdDev(Ri^2)+..) d(Std Dev (p))/dwi=(1/2Std Dev (p))*2*wi*stdDev(Ri)^2=(1/Std Dev (p))*wi*stdDev(Ri)^2...differentiating both sides w.r.t wi =>d(Std Dev (p))=(1/Std Dev (p))*wi*stdDev(Ri)^2*dwi=change in Std Dev (p)...(1) substituting value of change in...

As per i understand, Scaling of alpha means taking more active positions and bets on securities with different weightings and constituents then benchmark. When you trim alpha means you are still making bets but now you are downsizing these bets and biases to narrow levels so that portfolio...

Hi, Well theory in what respect you are talking about. That is most of the theory is based on numbers when i look at them. Every theory is trying to explian numbers for me and after all finance is a number game. If you look at the examples for frm they are mostly number based i think. I am not...

Hi Neutralization , biases are when weightings of assets and constituents are different than that of benchmark when we realign these weightings and constituents with benchmark then we say we removed these biases and bets. SO OUR PORTFOLIO IS BENCHMARK NEUTRALISED. Cash neutral using short...

Hi, Var i think above is not logical if we do not make the assumption that correlation lies between 0 and 1 and not -1 and 1. So if you make that assumption than at correlation 0 ,min Var=sqrt(Var1^2+Var^2)=sqrt(200^2+400^2)=sqrt(20*10^4)=200*sqrt(5)~446 And max Var in that case is Var1+Var2 at...

yes you can use historical simulation if you cant run the MCS to figure out CCF. But you can always use IRP to figure out the forward spot rates. Seeing your interest rate data it seems ok and you can project future spot rates using IRp and the given interest rates. Try to predict using some...

If such is the scenario than i think you can take a chance with studying for 100 hours but its risky i mean i will definitely require more time than this or that you can begin your preparation for the next part 2 exam after this one that is forego this one as there is limited time for...

For N asset portfolio assuming they are equally weighted each assets weight is 1/N Now std. deviation of portfolio = sum of variances of all assets (as correlation is 0 b/w them) std. deviation of portfolio=(w1*sigma1)^2+(w2*sigma2)^2+........(wN*sigmaN)^2 std. deviation of...

I can let you understand the relation of T^2 as David explains that convexity varies with square of maturity, Price of Z coupon bond with maturity T=P=F/(1+y)^T Duration= D= (1/P)*(dP/dy)=(1/P)*(-T)*(F/(1+y)^T+1)....duration formula convexity=...

hi please visit http://forum.bionicturtle.com/threads/yield-based-formulas-for-dur-and-conv.7071/#post-25355 On BAII plus follow these steps: 1. clear TVM 2. FV->-100 is face value of bond 3. pmt->-C/2 for semiannual pay of coupon C 4. N-> maturity of Bond say 5 yrs 5. I/y-> yield % 6. now press...

HI may i help,( my point of view may be i am wrong but as much i know but be dont take for granted everything but help you to understand) The ETFs are a set of exchange traded funds of securities and most of them are not liquid. The mean reversion period profitability can be performed by taking...

Hi First of all shall tell you that the method for estimating the potential future exposure is MCS(MonteCarloSimulation) . RUn the MCS for these currency pair by inputing appropriate inputs as interest rates and their volatility then future scenarios emerge and whats the possible exposure of a...

hi, This i think is for high volatility of credit spread. The sell on equity tranche protection premium is greater than buy on mezzanine tranche thus earning a net spread as equity tranche is more likely to default than mezzanine tranche and thus should earn more premium. Due to high volatility...

HI risk appetite here means the ability to held up with risk. THe risk has increased due to some shutdown of US govt looks like crisis situation and the Barclays Bank risk exposure that is risk appetite to asian markets have remain the same even in this crisis. The equities bid are still there...

Hi, Riskiness of a country bond or debt is determined by the credit spread offered by its debt being raised. A bond yield-country risk free rate(10 yr govt bond rate) would approximately gives you the credit spread of the country bond. A higher spread implies a greater risk of default or higher...

hi understand it like this i hope this is the logic you would appreciate ans would see how its true, betas of assets are, betai=Cov(i,m)/sigmam^2 betaj=Cov(j,m)/sigmam^2 =>Cov(i,m)/Cov(j,m)=betai/betaj ---1 identical correlation with the market means corr(i,m)=Cov(i,m)/sigmai*sigmam...

Hi, there is not much calculus besides basic maths like algebra and statistics. you dont need to use calculus unless you want to dig deep into the formulas to understand them e.g. duration, convexity etc. But that is not the necessity of the exam other than understanding the formulas and their...

hi Obviously when stock price falls due to uncertainty and loss aversion investors are willing to buy deep OTM puts. But deep ITM calls are priced higher see here: http://forum.bionicturtle.com/threads/volatility-smirk-for-equity-option-and-leverage.1765/#post-6173 Here David explains why as why...

please visit this link: http://forum.bionicturtle.com/threads/capm-sml-cml.5347/#post-25435 thanks

calculating term structure of interest rates, suppose that we want to predict interest rate term structure for the coming 12 months. Let initial interest rate be 1% and assume the annual volatility of interest rate be sigma=2.5%, long run rate be theta= 8% which is mean reverting level of...