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Hi @nansverma I would characterize CVA as the mark-to-market (MTM) price of counterparty risk. Without obsessing over particulars, CVA is given by CVA = LGD*EE(profile)*Discount_function*PD, so you have a series of future-dated credit exposures that are discounted to a present value (and the...

@Amarnadh D thanks but what same answer? I have a call into GARP (also in regard to the unconditional PD question) about this. If the assumption was 98% and 252 trading days then the correct answer is neither the simple average of worst five or six but rather, per my post above, the correct...

@kylian.mbappe Thank you, then that's looking for a conditional probability, "given" refers to conditional, although we had asked GARP to use the word "conditional" to avoid any confusion with the joint (aka, unconditional) probability. Is it so hard to use the word "conditional" when...

Hi @AHoekstra @AnnaM @amit.m.sharma @a_ishrat1973 @Anibal86 The hazard rate is an instantaneous conditional PD. If the question gave the hazard rate, λ = 0.12 and if it is constant (see below), then: Each year's conditional PD is 11.31% which is also the Year 1 cumulative/unconditional PD = 1 -...

@amit.m.sharma it looks like you were stuck for good reason: the 98.0% here is neither the average of worst 5 or 6. You didn't provide the 6th worst, but let's say it is 2.20% such that the six worst are: -2.8%, -2.6%, -2.5%, -2.4%, -2.3% and -2.2% Then the 98.0% ES is the average of the 2.0%...

Thank you @nikic really appreciated, were the choices only average of worst 5 or 6? Because I want to contact GARP if they did this incorrectly. If it was 98% with 252 Trading days, it seems unlikely to me they offered the correct solution ....

@nikic regarding ES, we do not "consider losses beyond the VaR threshold." Averaging losses is called a conditional VaR (or less often, tail conditional expectation, TCE) which has never been assigned and is ambiguous when the VaR is ambiguous. We use expected shortfall (ES) which is never...

Hi @DunderMifflin Such instances should only be observed in older practice papers, the 2019 paper and the exam itself should not suffer any imprecision (i.e., we have given plenty of feedback to GARP about the need for compound frequency specification). In any case, practice papers prior to 2018...

@Jaskarn I do sincerely apologize. Actually, I immediately deleted my post, realizing that I probably did misinterpret. It's a stressful time for all of us.

Hi @sparty I wonder if you refer to the sheet below (see snapshot)? I broke off the sheet for you here https://www.dropbox.com/s/6cl645mg6ekz611/051319-realized-return.xlsx?dl=0 ... located in this learning XLS at https://learn.bionicturtle.com/topic/hull-chapters-13-15-19/ ... please note...

@DunderMifflin where did you get our mocks if you aren't a paying subscriber, do you mind me asking?

Hi SB (@sitingbull ) Well I read the image-text with header "2.1 Forward probability of default" as fully consistent with the conventional definition of a conditional probability. The formula, too. The denominator, n(ik)(t(k)), "denotes the number of borrows who survived" the period immediately...

Hi @kausthub It's a good question, I have the benefit (curse? ;)) of having much opportunity to think about this ... first, we might distinguish between spreadsheet implementation, which of can vary, and textual notation, which (in my opinion) should aspire to consistency, especially for exam...

@Tereza See (eg) https://forum.bionicturtle.com/threads/p2-t6-208-credit-derivatives-credit-default-swap-topic-review.6204/ which I think will be found in the T6 Malz reading as that's where CDS valuation would be found (credit risk).

Hi @nikic I think that's clever (btw, I think you mean 2.33 for 99.0% approximation whereas your formula reflects a 95.0% VaR approximation and so uses 1.65): the distribution is nearly normal so you've approximated the 0.95 quantile with normal parameters. (on a really minor note, I'm thinking...

Hi @nikic No, the MRP formula featured in 907.3 above would never realistically be tested (the LO verb is "Explain" not "Compute" or "Calculate"), which is precisely why the formula is included. But the calculation isn't really the point. Question 907.3 happens to be my designed question for the...

Hi @aangermeyer Yes, you are absolutely correct. Thank you for identifying these typos (cc @Nicole Seaman ). The solutions of 0.766371 and 0.886233 do reflect the denominators /1.142 and /1.062 but the text is incorrect. Really appreciate your attention to detail here. Thank you!

Hi @sitingbull No, I don't think we (the FRM) uses such a metric. My hunch is that's an impression created by the Giacomo DeLaurentis reading (is that the author?), which is error-prone and imprecise. He has a measure called the "forward PD" which is what should be called the conditional...

Hi @kausthub I moved your (very popular) question to this thread; please see above, including above at https://forum.bionicturtle.com/threads/valuing-plain-vanilla-swap.6382/post-20264 where I created a tiny XLS illustration. Thanks!

Hi @RushilChulani GARP 2016 P2.Q72 above is looking for a two-sided rejection regions when it asks "how many stocks have an alpha greater than 4.0% or less than 4.0%." Under the (mistaken, I think) original version of the question, the standard deviation of the alpha was meant to be about σ(α)...