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Hi @goodyhi11 they are not conceptually different. The difference is merely compound frequency, which is a feature of the rate. So, for example, say: Spot = 5.00; T = 2.0 years; R = 3.0% and Rf = 1.0%. As stated, we don't have enough information actually because we aren't told if the rates are...

@Kanyarabi OLS assumes homoskedastic (constant variance) error terms. Stock & Watson (not Miller) is saying that when the errors are hetero, the WLS procedure produces better regression coefficients (actually, in the strict sense, it's not a messy heteroskedasticity but a variance that increases...

Hi @sam313 At first glance I actually don't see an easy calculator solution. Perhaps this is why Hull does not show a calculation but rather delegates to his spreadsheet. It's not the logic that's hard: Assume $100,000 salary (as Hull notes: The salary of the employee makes no difference to the...

Hi @sam313 is there an analytical (direct formula) solution? I didn't see that when I tried it ... it seems to want a simulation. Although this is sort of the sort of timeline-based problem that I perceive to be common in the CFP, and of course it should be able to be solved with a calculator. I...

Hi @lowhueyyi The typical transition/migration matrix, such as the copy you've linked above, does indeed contain single-period conditional probabilities; most often, one-year conditional probabilities. If we cube the single-period matrix, as above, then T^3 is a three-year matrix. Further, the...

I totally agree with Nicole @Aamirkhnp there are no dumb questions here. As far as other forums, the other major FRM related forum used to be analystforum but activity there seems to have basically dwindled to almost nothing. As far as I can tell, the conversation that used to occur on AF has...

Yes, thank you @lowhueyyi Absolutely true! @Nicole Seaman Minor typo in 5th bullet of page 24 of R19 Study Note (Hull Chapter 2: Mechanics of Futures Markets, OFOD 10th), it should read "15,180" to match final number of sixth row on previous page 23:

Part of our motivation for this numbering system was that we observed so many practice questions, floating out there, of varying quality and relevance levels. It's hard to ascertain relevance. So this system effective time-stamps the year during which the question was written (e.g., P1.TX.8XX =...

@Sixcarbs Yes, I meant ^4 since there are only 4 returns, sorry. Looks like the CAGR should be (1.080 * 0.920 * 1.120 * 0.880)^(1/4) - 1 = -0.005218 = -0.5218%. Thanks,

Hi @Lasberm I am skeptical that an exam question would ask you "to calculate LR from UL;" i.e., given UL, to calculate LR would be very strange. Do you instead mean the question asked you to calculate UL given LR? I can't help without knowing the question ... did you check our feedback thread...

Hi @tushijima Please see McDonald's Table 5.6 & 5.7 below. The $9.90 in my example is given by S(0)*exp(-δ*T) = $10.00*exp(-1.0%*1.0) = $9.90 where 1.0% is the lease rate, which itself is given by δ = α - g = 6.0% discount rate - 5.0% expected growth rate. Here is the XLS...

Hi @Tim_Rogers Per my video, I've never altered the default P/Y = C/Y = 1 settings, nor have I found any application that required me to change them. Perhaps at this point, it's just mostly force of habit, but I'd confuse myself if I changed them. By retaining P/Y = C/Y = 1.0, we operate on...

Hi @akrushn2 No, I'm including T-bonds which are an investment asset commodity, so they should fit the logic along with all the consumption commodities. Basis risk is firstly a mark-to-market risk. Basis strengthening/weakening is a dynamic over time, from today until maturity. I'm saying: say...

Hi @Tim_Rogers In regard to question number (2), If the lookup shows N(0.73) = 0.7673 and N(0.74) = 0.7704, but you want N(0.736) then the FRM expects you to know how to interpolate: N(0.736) ~ 0.7673 + 60%*(0.7704 - 0.7673) = 0.7691 because (0.736-0.730)/(0.740-0.730) = 60%. That's how I think...

Hi @akrushn2 The cheapest to deliver (CTD) option is a complication but I think the basic idea that a "long (short) hedge is long (short) the basis" still applies in T-bonds. If you are a bond manager with a long position in long-duration bonds then your exposure is to an increase in interest...

@Lasberm In addition to the references, if you are asking from an exam perspective, then please know that loss rate (aka, LGD) or recovery rate would be supplied: It is notoriously difficult to parameterize. The most common traditional approach is to characterize it with a beta distribution...

Hi @GautamN Please see below; my XLS is here https://www.dropbox.com/s/3e3bk4kcx11z2gz/082019-bayes-multiple.xlsx?dl=0 The final column here shows joint probabilities (rather than conditional probabilities) such that the sum of those in the final column must be 100%. Specifically, The joint...

Hello thread. Because @lowhueyyi raised a great point about the "Joint PD," I edited the exhibit (see below) to include the fact that Joint PD = Unconditional PD (including see footnote). Further I deleted Marginal as a synonym for Unconditional, the problem is: I can find uses of "marginal"...

Hi @lowhueyyi So I guess you saw my response. Your last question is the easiest (although I guess you just edited it ....) The joint default probability is the same as unconditional (be definition); in the example above, the year 3 unconditional PD of 7.2% (final column, one row up from bottom)...

Hi @ad17171717 Great question! It was not obvious to me at first glance but it can be deduced (and confirmed) by the formulas and examples. His axis labels are accurate: he is regressing the (periodic) change in correlation against the previous level of correlation. First, the key variable here...