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@MissJaguar I figured out that you are asking about Jorion's Figure 6-3. Please note that your formula using the normal approximation (a separate debate when n*p = 7.5 < 10; conventionally, we prefer n*p > 10 and n*(1-p) > 10 before relying on the normal to approximate the binomial; Jorion...

@MissJaguar is your question not about any of the 7xx.x questions? you don't reference 712.1, eg. Sorry, it's just really time consuming to try and understand what's even being asked @Nicole Seaman when the forum is upgraded (and the move function) fixed, can we move the above question to...

@umerkhan The difficultly is not the distinction between accounting and economic profit: that should be easily understood by any accounting student (accounting profits refers to reported earnings per accounting conventions, which any analyst knows does not equate to cash flow or economic balance...

Hi @pengfrm (Is your Hull reference meaningful here?) That's a super sweet catch, love your attention to detail. I agree. The question follows his pattern in 13-1 so I'm able to easily insert into our XLS. It appears to be an interim typo only, as I am getting to the same conclusion given (i.e...

Hi @JulioFRM I could be wrong but we've been taught that a forward is specific type of bilateral contract between two counterparties. Therefore, it seems to me that, for example, nothing is stopping you and I from entering into a forward contract (let's say: I will deliver 20 Litecoins, LTC, to...

Hi @AlexFrm Sometimes seemingly simple questions reveal layers of complexity! ;) An "easy way" through this problem is to utilize VaR in percentage (return) terms, which we do tend to do. For example, if today P = $100.00, daily σ = 1.0%, and if the daily returns are normal, then our 95.0%...

okay thank you @rnavarro for the pointer!

@agattik Miller's is a strictly correct solution to the derivative (i.e., solving for a local minimum in the net portfolio's variance): by assuming the portfolio variance is given by σ(A + B) it is assuming the that (B) is added to (A) such that, when the correlation is positive, we need to...

Okay thank you I will check it out, that actually makes sense! Although why isn't the initial B31 squared, shouldn't it be?: =SQRT(B17^2*(10-B17)^2*IRVol^2+B17*FXVol^2+2*IRFXCorr*B17*(10-B17)*IRVol*FXVol) Can i ask, did you see this in an updated XLS version, or did he explicitly identify in...

Hi @Sun1900 While I am not near to this particular data point (I'm sure @Nicole Seaman can say more tomorrow), it is my anecdotal understanding that a one month wait is not at all atypical, and may even be typical; e.g...

Hi @jbejarjimenez no worries, i don't think it's a piece of cake for anybody. In the un-adjusted approach, you buy whatever amount of the hedge instrument to set equal (per a simple re-arrangement): F(hedge)*DV01(hedge) = F(exposure)*DV01(exposure). That's really what I mean by...

HI @jbejarjimenez When you hedge per F(hedge) = -F(exposure)*DV01(exposure)/DV01(hedge), you are equalizing (neutralizng) the DVO1 (aka, dollar duration/10000). When the dollar duration is equal for both, a yield shock of xΔ% to both implies that the dollar change to both is equal, and the hedge...

Hi @emilioalzamora1 and @Karim_B Thank you for the kind words and travel support. We had a fabulous time in England. My brother and his kids started in Edinburgh, and wanted to head south to London. I joined them in York. We knew we wanted to see London (of course), so it was really just a...

Well, like everybody else, I'm challenged to interpret Crouhy who has not presented a numerical example, unlike Saunders. A numerical example would be immediately clarifying. In today's interpretation, from the text, I've inferred: The initial state is a US firm who is long GBP on the asset...

Hi @umerkhan I just replied to a very similar question here (actually, it's an entire thread about this topic). We have a temporary glitch in the forum, we cannot currently move posts, but we'll move your post here (cc @Nicole Seaman) when it's fixed...

Hi @terrence I think the initial situation is something like a US-based company: on the liabilities side has borrowed GBP £ 1.0 mm in a loan, to fund on the asset side: a GBP £ 1.0 mm Plant This a balance sheet this is "matched in currency exposure." From the parent US company's perspective...

Hi @ziminli1228 These test statistics are really tedious. For the first time, I've captured them into an Excel (XLS) so that we can eventually improve on Jorion's own answer: https://www.dropbox.com/s/281907dztx7s8i7/0815-hull-eoc-6-10.xlsx?dl=0 The screenshot is below, I first ensured that the...

Hi @ziminli1228 Right, it is a convenient formula for modified duration but only for the special case of a bond that is priced at par. See below, Tuckman's 4.45; the "c=y" subscript indicates coupon rate equal to yield and, therefore, a bond that is priced at par. Tuckman's formula, as with his...

Thank you @Nicole Seaman (for many things, not the least of which is: the ability to take a vacation knowing you are holding down the fort!). I'm off to England (York > Oxford > Bath > London), yay. Thanks!

Hi @Nikita Gusev I think that's a great question, by which I mean to suggest that I don't necessarily perceive there is a single correct answer. But I think the theory (in the FRM at least) is that mapping is essentially the exercise of simplifying an intractably complex reality by defining a...