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Hello David and all, Regarding second part, continuous function is one where small changes in stock price will always result in corresponding small change in payoff. And discontinuous function is where above does not happens that is small changes in stock price will not always result in...

skoh,please refer to link for N(d1) http://forum.bionicturtle.com/threads/how-do-you-find-n-d1-in-black-schloes.6059/#post-18943 thanks

please refer to the link for more info: http://forum.bionicturtle.com/threads/passed-part-1-and-part-2-but-not-yet-certified-frm.6002/page-5#post-19679 thanks

Hi skoh, Binomial from its name implies two states up or down.Binomial model determines future payoffs of a bond or stock using trees where each node points to two possible states.Based on future cash flows and interest rates based on certain probability we derive the price of bond/option or...

see you are taking t as .5,1,1.5 and also taking semi annual yields for calculation so make t as 1,2,3,4 above and see the results.Since your rates are semi annual its necessary that you take period wise PVs instead of yearwise. We always calculate the PVs looking into periods and yield over...

In this case nothing will change except that coupon rate now is 2.5% down from 5%. You just need to replace 5% with 2.5% as coupon rate for bond or convexity calculations.Now Bond is paying 2.5% on FV of bond every six months . In that case bond values will change and consecutevely the convexity...

Hey mathman, coupons are given 5 . 5 is 6 month coupon rate because coupons are always given every six months. 5% 2 year Semi Annual Bond=>The rate here implies that coupons are paid every six months at rate 5% of the face value at semi annual yield which is 4.5%.This is how we read. No dont...

Convexity calculation coupon 5% y 9.20% you need to convert it into annual yield BondFaceValue 100 t | CFt | |PV of CFt | PV of CFt*(t*(t+1)) 0.5| 5 | 4.784689 | 3.588517 1 | 5 | 4.57865 | 9.1573 1.5 | 5 | 4.381483 | 16.43056 2 | 105 | 88.04894 | 528.2936 sum | 101.7938 | 557.47...

Try the formula as: C= Summation of (( year number)^2+( year number)) * Present Value of Cash Flow / Current Bond Value*(1+y)^2 this is as given in john hull.

@FRMStrawberry FRM handbook is a comprehensive coverage of all the topics of the risk management and all the associated topics. If you want to prepare well and have sufficient time than you can use the handbook. This will definitely help you in the long run and not merely for the exam. Some...

Hi Suzanne, I would prefer Amazon certificate only and yeah please keep the gift method the same . You can do it automatically from next time. thanks

Wants to conclude the topic of swap discussing the type of swaps. 1. CDS(Credit Default Swap): X has exposure to Y and wants to mitigate the risk of default from Y so X buys CDS from third party Z which provides protection to X in case of default from Y. X pays a periodic interest to Z who bears...

A Strangle Combination: Long call(Exercise price K2)+ short put(Exercise price K1) where K2>K1 P/Off=call P/Off+put P/Off P/Off=max(S-K2,0)-max(K1-S,0) for S<K1<K2 => P/Off=0-(K1-S)=-(K1-S)<0 for K1<S<K2 => P/Off=0-0=0 for K1<K2<S => P/Off=S-K2-0=S-K2 So upper bound is S-K2 and lower bound is...

Thanks Suzanne and David again for the prize. I am very much pleased with a prize again from you people.Its great to be here in the forum and answering these Fun quizzes . I have derived great learning and knowledge from this forum. In addition the prizes are just a bonus for me. If they comein...

similarly we can find the derivative of option vamma w.r.t the volatility called ultima which is nothing but the double derivative of call w.r.t the volatility. vamma=d(vega)/dσ=vega*(d1d2)*[1/σ] ultima=d(vamma)/dσ=d/dσ[vega*(d1d2)*[1/σ]]...

Vanna =d(delta)/dσ =d/dσ[exp(-qt)*N(d1)] =exp(-qt)d/dσ[N(d1)] =exp(-qt)*d/dd1[N(d1)]*dd1/dσ we have seen that dd1/dσ=-(d2/σ) so Vanna==exp(-qt)*d/dd1[N(d1)]*-(d2/σ) Vanna==-exp(-qt)*[N'(d1)]*(d2/σ). Vera=d(rho)/dσ Vera=d//dσ[XN(d2)(-(T-t)exp(-r(T-t))] Vera=[X(-(T-t)exp(-r(T-t))]*d//dσ(N(d2))...

Currency swaps can be values as the difference in the value of two bonds or a portfolio of forward contracts. Consider a currency swap where 5% is received in yens and 8% is paid in dollars.Payments are made annually. principals are 10milion dollars and 1200 million yen. Current exchange rate is...

Now we consider the currency swaps: The currency swap is an agreement that allows both sides to exchange cash flows in different currencies at pre-specified dates with the exchange of notional principal at the initiation and end of the swap contract. Currency swaps facilitates to convert...

please dont get confused the BEY with other compounding measures. the formula is for BEY don't use for other purpose. please use simple compunding to arrive at your results. e.g. if 5% is semiannual rate than and i is monthly rate than, (1+i)^6-1=5%=>(1+i)^6=1.05=>i=1.05^(1/6)-1 5% is the semi...