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@JamesVU2000 Thank you. CAPM is found in three places in P1.T1 (Elton, Amenc, and Bodie) so it wasn't obvious to me. Each morning, Nicole and I hustle to answer questions, many of which can be moved to prior discussions (because most do not use search, as much as we try), so it saves us time if...

HI @JamesVU2000 You've not sourced this so I don't have the context (@Nicole Seaman can you please move this thread once we know to what it refers?). A fundamental, essential identity is that covariance(x,y) = correlation(x,y) * StandardDeviation(x) * StandardDeviation(y) such that "correlation...

Thank you @Naveen Kanth but I don't quite understand. @Nicole Seaman when you get a chance, can you seek clarification on this feedback item? Thanks!

Hi @Branislav It's not dummy at all. The calculator is giving you 7% + 6% of 0.070 = 0.070 + 0.060*0.070 = 0.0742 or 7.42%. I guess it's supposed to be easier for sales tax applications etc, but I never understood it because the second ("%") is reaching back before the "+". Somebody probably...

Mathematically we can connect them, at the risk of missing a larger point, I think. If we need two terms of the Taylor Series (i.e., delta-gamma) then probably we are talking about an option or bond or something non-linear. (delta-normal VaR is just a special case where we only use a linear...

Hi @patrickbs Right, we talked about that here at https://forum.bionicturtle.com/threads/theoretical-futures-price-of-a-bond-vs-forward-price.7282/#post-25943 My view is that your question above implicitly refers to a cash (aka, full, invoice, dirty) bond price. That is, both the spot price and...

Hi @chiayu Hmmm. The second scenario concerns a man who has just turned 90 years old and buys term life insurance over the next two years, until he reaches his 92nd birthday. (I guess you are in Hull's 4th edition rather than 5th edition for some reason). On the contingent payout side of the...

Hi @patrickbs i don't follow, sorry. The above theoretical pricing of a T-bond futures contract utilizes consistently this: cash price = quote price + accrued interest. But it's on a presumed (best guess) cheapest-to-deliver (CTD) bond with an quote price of $115.00. The current (spot) cash...

Hi @jack11961 But they are both saying (correctly) the same thing: As time marches forward (moving forward in time), under normal backwardation (assuming constant or at least non-decreasing spot) the futures price is increasing; or equivalently By definition of normal backwardation the futures...

Hi @[email protected] But those gammas are too high! gamma is the approximate (linear) change in delta per a one unit (in this case, one unit is $1.00) change in the stock price. So, in my example above (my own calculations) where, under a low volatility of σ = 18%, the ATM gamma is...

Hi @JanaRad The 0.5 is because the swap is exchanging cash flows every six months (twice per year) while the rates are expressed in per annum terms (i.e., 3.0% per annum). A helpful thing to keep in mind is that interest rate inputs are generally given in per annum terms, and should always be...

Hi @[email protected] I do not myself divide the result by 100. You can see my recent youtube (with XLS) that includes position gamma, in each of these I'm calculating gamma natively without /100. For example, in my latest (published yesterday), T4-19 below, For an ATM call option S(0)...

Hi @cc4300 Welcome! Please note that if we copied (transferred) the three given joint probabilities to a 3* 3 matrix (G * B) then only the diagonals would have values; the other six cells would contain zeros; e.g. P[G=3, B=7] = 0%. I say that in order to emphasize that the unconditional (aka...

Hi @patrickbs Yes, I do agree with you: if the binary (aka, digital) call option pays Q = S(0) then it is effectively a cash-or-nothing call option. An asset-or-nothing call pays the asset price at the (future) time of exercise, which is unknown (unknowable) at contract initiation (aka, purchase...

Hi @anniedu Dowd shows the derivation (see below) of the standard error of the quantile estimator on page 70: Source -- Measuring Market Risk, 2nd Edition, Kevin Dowd

Hi @JamesVU2000 I'm not sure, your result suggests a coupon rate that is higher than the yield, so something's amiss on your inputs. Try the sequence below but notice my first two steps reset/clear the calculator. After each step, my "#" signifies my comment so you can compare the DISPLAY (my...

Hi @nansverma Yes, I think you are right to be puzzled by Stulz: we've had to contend with contradictions surfaced in Chapter 18 for a decade; e.g, see https://forum.bionicturtle.com/threads/interest-rates-stultz.10689/post-52227 There are a few problems, but in my opinion, your point speaks to...

Hi @Sujatha sundarji It's not, CVA is subtracted. The key unilateral relationship is given by Gregory's formula 14.1: Risky value = Riskfree value - CVA. Intuitively, say you have a derivative contract with me (as your counterparty) which has a value of $100.00 when you view me as posing zero...

Hi @Linette Joseph Here is the XLS (see screenshot below) of Meissner's calculation in Chapter 1 https://www.dropbox.com/s/jgd2v6suq9mk42h/0224-meissner-port-sigma.xlsx?dl=0 .... I don't understand where you are getting your weights (67% and 33%) and standard deviations (2.0% and 1.0%) and your...

Hi @Jaskarn The auction was part of the CDS Big Bang Protocol, and it was needed to solve the problem of a delivery squeeze. The squeeze problem here is similar to the squeeze problem thwarted by the the use of the cheapest-to-deliver (CTD) option in U.S. Treasury futures contracts. The problem...