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Now lets know something about Non standard American options: 1. bermudan options are nothing but plain vanilla european options with additional rights to exercise at certain specific dates before expiration. The bermuda options gives more flexibility than european options but are more...

P(D1/S1)*P(S1)=P(D1&S1)=P(S1/D1)*P(D1) P(D1/S1)=P(S1/D1)*P(D1)/P(S1)....1 P(S1)=[P(S1/D1)*P(D1)+P(S1/D2)*P(D2)]....2 2=> P(S1)=.15*.6+.8*.4=.09+.32=.41 From 1, P(D1/S1)=.15*.6/ .41=.09/.41=.219 P(D2/S1)= P(S1/D2)*P(D2)/P(S1)=.8*.4/.41=.781 Similarly...

A Strangle Combination: Long call(Exercise price K2)+ long 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 for K1<S<K2 => P/Off=0+0=0 for K1<K2<S => P/Off=S-K2+0=S-K2 From above its clear that strangle pays when...

Hi all, here just starting a thread on exotic options. These are wonderful options in a sense that they are modifications of the original options and they can suit needs of variety of investors. I would describe about these options in this thread only for coming days. lets start about the types...

1. c(0)= S(0)*N(d1)- K*exp(-rT)*N(d2) d1= ln(S(0)/X)+T*(r+.5sigma^2)/σ*√T d2= ln(S(0)/X)+T*(r-.5sigma^2)/σ*√T Assuming that S0>X; as T -> +∞ => d1->+∞ =>N(d1)->1 case i) S(T)>X stock price at time T as T approaches +∞ => N(d2) which is probability of S(T)>X is 1=> N(d2)=1 c(0)= S(0)*1-...

May be there is a problem or technical issues with the side or try after some time...this usually happens when the site is under maintainance . if even after this problem persists than you send a query to garp people or contact them.. thanks

look at the video for further clarification and link http://forum.bionicturtle.com/threads/hypoththsi-testing.394/#post-1651 thanks

Please see the the study guide http://www.gocharter.com.tw/download/2012FRM_StudyGuide.pdf. as far as i can see there are no mortgages in part I and the mortgsages are covered in detail in part 2.If there are no mortgages mentioned in part 1 syllabus than you can infer that it will not be coming...

In the POT model the excess losses over high thresholds are modelled with the generalized Pareto distribution ?GPD?. This distribution arises naturally in a key limit theorem in EVT. p,lease refer to the document for more see page 3 ftp://hubble2-1.math.ethz.ch/users/mcneil/cairns.pdf The most...

There is generally the case with stock call options that the value of the call increases with increase in interest rates. The call option gives right to the option purchaser to buy the underlying asset at a specific price called the strike price before time to maturity for american option and at...

Yes good luck to all the people on this forum who are giving the FRM Nov exam this year. May all you pass with flying colors. Looking from my side when I sat for the exam last year I was really intimidated with the amount of formulas one has to remember and the technicality of the exam makes it...

Indira, Your logic was not appropriate i think. you were looking at things like N(d1) and exp(-rT) in isolation that is you were considering them separately. Instead of looking inside N(d1) which also has terms in variable T whose effect you were considering in option value you just considered...

Its not a better idea to skip readings because all the readings are important because its likely that all the topics are covered in the exam. Even if you have not been able to read some of the reading due to lack of time than i would advise you to just skim through and see some of the main...

call=SN(d1)-Kexp(-rT)N(d2) call=S(ln(S/K)+T*(r+.5sigma^2))/sigma*root(T)-Kexp(-rT)(ln(S/K)+T*(r-.5sigma^2))/sigma*root(T) call*sigma*root(T)=S(ln(S/K)+T*(r+.5sigma^2))-Kexp(-rT)(ln(S/K)+T*(r-.5sigma^2)) call*sigma*root(T)=S(ln(S/K)-Kexp(-rT)(ln(S/K)+T*(r+.5sigma^2))+T*(r-.5sigma^2))...

The normal distribution is symmetric so that area greater than N(2.33) is 1% and area smaller than N(-2.33) is 1%. If for 1 tail test N(2.33) is 99% than from symmetry for 2 tail test N(2.33) has areas for both the left and right sides of the distribution equal to 1% so total area occupied is...

According to single index model, the security volatility is given by, σ(i)^2= β^2* σ(m)^2+e^2 where β^2* σ(m)^2 is systematic risk and e^2 is firm specific risk now for a portfolio of n securities the firm specific risk diversifies away leaving ep=0=>ep^2=0 so we have. σ(p)^2= β^2*...

Var-POT(u+(β/ξ)*(pow(n*(1-CL)/Nu,-ξ)-1)) which requires many parameters includingβ,ξ(shape parameter) where as the POT distribution has two parameters. GEV is which requires 3 parameters ξ(shape parameter),mu(location),sigma(scale) you might have got confused by the VaR formula but i think...

from CAPM, E(Rp)=Rf+β*(Rm-Rf) Or E(Rp)-Rf= β*(Rm-Rf) Or (E(Rp)-Rf)/σ(p)= β*(Rm-Rf)/ σ(p) Or S.Rp.= β*(Rm-Rf)/ σ(p) Or S.R.p= β*(Rm-Rf)/ σ(p) Now since, σ(p)= β* σ(m) implies S.Rp.= (Rm-Rf)/ σ(m)=S.R.m Now measuring sensitivity of SR to portfolio volatility, d(S.Rp)/d σ(p)= d//d σ(p)[ (Rm-Rf)/...

Its better to take risk of junior tranche relative to some benchmark.Due to low correlation the junior tranche is more riskier than senior tranche while with high correlation the the junior tranche has become less riskier than senior tranche relatively. So relative to senior tranche the risk of...

As per my understanding the as EVT is concerned with the downside of returns that means we are only interested in the formula x = u - (z * sigma) which gives the downside of returns for a mean u and std. deviation sigma of returns. so that x-u=-(z*sigma) or z=-(x-u)/sigma so it should be e ^ (...