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MP1=MB0*r/(1-(1+r)^-T1) 1-(1+r)^-T1= MB0*r/ MP1 1-MB0*r/ MP1=(1+r)^-T1 Ln(1-MB0*r/ MP1)=-T1*ln(1+r) Ln(MP1/MP1-MB0*r)/ln(1+r)=T1 T1/T2= Ln(MP1/MP1-MB0*r)/ Ln(MP2/MP2-MB0*r) T2= [Ln(MP2/MP2-MB0*r)/ Ln(MP1/MP1-MB0*r)]*T1 …..our analytical formula for calculating time period after change in...

Hi Nilay, Yes I wrongly in hurry interchanged Absolute and Relative Vars definitions was really hurried up to finish this long answer. Sorry for the mistake. But i have made the changes above. thanks

Yes David I totally Agree with you infact I misused the formula for beta which instead of Cov(Rp,Rb)=B*sqrt(VaR(Rb)*VaR(Rp)) is Cov(Rp,Rb)=B*VaR(Rb) =B*VaR(ERP+Rf)=B*VaR(ERP) so in this respect we tally, Var(Rp-Rb)=B^2*VaR(ERP)+VaR(ERP)-2*B*VaR(ERP)=(B-1)^2*VaR(ERP) and thus finally, IR comes as...

David has escaped covariance term now I would like to show what IR depends when Covariance is taken into account, Information Ratio: IR= [E(Rp)-E(Rb)]/sqrt(Var(Rp-Rb))...(1) Now, E(Rp)=Rf+B*(ERP) or E(Rp)-E(Rb)=Rf-E(Rb)+B*(ERP) or E(Rp)-E(Rb)=-(-Rf+E(Rb))+B*(ERP) or E(Rp)-E(Rb)=-ERP+B*(ERP) or...

Absolute VaR is nothing but VaR calculated as we normally do with respect to a mean of zero as the maximum loss that can occur at a certain confidence level(CL) over a specific period of time.Relative VaR is given by at 95% CL as 1.645*volatility*Value of Portfolio. Whereas Absolute VaR will...

Yeah Aleksander is right in this regard.Lets give chance to all. May be some people might come out with better answers than us. Seeing a lot of wise people visiting the forum. Nice to see such conceptual Questions.

The Liquidity Adjusted VaR is, LVaR=VaR+Liquidity cost LVaR=VaR+(mean of spread+1.96*volatality of spread)*V; there should be plus instead of minus sign in the formula above Another Mistake above seems that mean and volatility of spread are taken in USD and when multiplied by V gives USD^2 as...

Yeah Aleksander, I forgot to take 1/P on both sides of equation and thanks for letting me know this.I have edited it.

Macaulay Duration is basically number of years it would take for the investment in the fixed income security to be recovered.It is max. for zero coupon bond since it takes the max. years equal to maturity of bond for the invested money to be recovered. Bonds with large initial outlay of money...

Thanks for the gift. I go for Amazon certificate.

JPMorgan was using Historical Simulation method for Var Calculation. In the mean time due to changes in the synthetic credit VaR portfolio the risk of the positions increased manyfold. The estimate of certain parameters requires estimates like the volatility which can be manipulated by JPM to...

Note:Block letters are Main parts of the answer The Futures price of a commodity is given by: F=S*exp(r+c-y) where r: risk free rate, c:cost of carry, y: convenience yield The Bond/stock futures pays a fixed dividend yield and thus this yield over a time can outweigh the investment commodity...

I arrived at the answer as: Regression Equation is: Y=1.001X+.32 Z=(Y-0)/SE(Y) At 95% CL z=1.645 At 95% CL for value of Y to be >0: z>1.645 or that (Y-0)/SE(Y)> 1.645 or that (1.001X+.32-0)/(29)> 1.645 [SE(Y)=summation of (Y-Yactual)^2= summation of e^2 implies SE(Y)=SE(e)=29] or that...

Q1) m1=49% ; m2=57.72% n1=6;n2=5 calculated standard deviations of samples is: s1=5.84% and s2=3.49% Now establishing a two tail test: Null Hypothesis: m1=m2 and Alt.Hypothesis: m1!=m2 t-stat for the two sample test is given by: t-stat=(m2-m1)/s where s=sqrt((s1^2/n1)+(s2^2/n2))=2.85%...

Now According to my solution: the Geman defined h=1-(Var(S-F))/Var(S) or h=1-(VarS+VarF-2*corr(S,F)*sqrt(Var(S)*Var(F)/Var(S)) or h=1-(1+(VarF-2*corr(S,F)*sqrt(Var(S)*Var(F)/Var(S)) or h=(-VarF+2*corr(S,F)*sqrt(Var(S)*Var(F))/Var(S) or h= -(VarF/VarS)+(2*corr(S,F)*sqrt(Var(S)*Var(F)/Var(S)) or...

E(X)=E(Y)=3.5 E(X+Y)=7; Var(X)=sigma([X-E(X)]^2)/(6-1)=3.5 similarly Var(Y)=3.5 and corr(X&Y)=0 =>Var(X+Y)=Var(X)+Var(Y)=3.5+3.5=7 When X and Y became dependent with corr.=.5 then it does not affect the expected value but only the relative outcomes of X and Y. Also since std. deviation of...

Yes passed part with flying colours: Credit Risk: Q1 Investment and Risk management: Q1 Current Issues: Q1 Integrated and Operational Risk: Q2 market Risk: Q4 :):)

Yeah i might like to explain the answer as: The beta of stock acc. to US risk is 1.4 Taking into accoun the risk of foreign stock as mentioned thru volatilities the adjusted Beta is: 1.4*(volatility of italy eqty./volatility of US eqty.)=1.4*(30%/20%)=1.4*1.5=2.1 Applying the CAPM: the cost of...

Hmmm its a long wait now for me...I also in same boat with 50/50 chances. Come the result day and we know what are actually the results.BTW best of luck to me and then everybody waiting for the results:)

1) Implied volatility is assumed to be the center. What will be the effect? (out-the-money call value ) 2) What did John Rusnak do? (made fake transactions to manipulate VaR) 3) What will the Q-Q plot look like? (I marked the one which was straight below 1 and then upward sloping for +ve...