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Dear David, I suspect that FRM handbook (5th edition）made a mistake in the answer provided to Example 12.5 on page 306. The question asks what the hedging strategy using futures contracts should be for a bronze producer who will sell bronze in three months and the answer provided...

Dear David, I have read from FRM handbook (5th) page 241 that high current demand leads to high convenience yields, thus causing backwardation in in commodity future market; and I have also seen one FRM practice question about whether a foreseeable lack of supply or high demand...

Dear David, There is a very basic formula that I'd like to double check with you, which concerns the targeting of total portfolio duration. The formula is shown on page 307 page of FRM 5th Handbook under the section ' Duration Hedging", where it says that in order for us to...

Dear David, I have encountered a phrase called "average dividend yield" when doing the practice question 05.11 from Hull. I couldn't understand what it means, can you kindly explain its definition as well the implication of this to calculation of price for a futures on stock...

Dear David,o I suspect that there is mistake made with spreadsheet 7.d.1 when you calculate the total tier 1 capital and the capital adequacy ratio. I think similar to tier 2 and tier 3 capital calculation, tier1 capital should be 300+100+400 = 800, instead of 900 in your original...

Dear David, I don't understand it when you said on page 43 of "2008 FRM Operational Risk Discipline Study Notes" that: if the firm incurs a large loss and has no liquid assets to finance the loss, the buffer stock of book equity will not matter." Based on my interpretation of...

Dear David, I'm confused by the two different formulas that applies to market risk capital charge: one is BASEL Market Risk Charge that equals to the maximum of k times the average VAR over the last 60 days and yesterday's VAR plus the specific risk charge; the other one is...

Dear David, I saw from your Operational Risk Question and Answer - question B 3 that the amount of deposits required to fund a bank loan is calculated as the total bank loan principal minus the dedicated economic capital. I don't quite understand this equation because in my view...

Dear David, I have some confusion over the illustration of "Smile Effect" of implied distribution on page 354 of FRM handbook(5th edition). Figure 14.6 graphically plots the relationship between volatility (%) and the ratio of current spot price to strike price for a put option and...

Dear David, Thanks a lot for your reply! I really appreciate :-) your great sense of responsibility and insistence on giving FRM candidates the best answer. Can I just double check with you that my digest of your answer is correct? under my two...

Dear David, I hope you can render your kind help on my following questions on EAR. In example 1.1 on page 5 of FRM handbook (5th edition), the question asks for Effective Annual rate for a T-Bill maturing in 1 month that investors bought for $987. On the maturity...

Dear David, John Hull in his "Options, Futures and Other Derivatives"(7th edition) (page 229) said that for a calender spread made up of call options, " if stock price is very high when short-maturity option expires, the investor makes a net loss that is close to the cost of...

Dear David, I don't understand why delta of forward for non-dividend stock could be 1 when the forward price equals to (So)exp(rT), meaning every unit change in So should be multiplied by exp(rT) to really affect the forward price. As to futures contract, I think...

Dear David, For a typical long and short stock positions as described in page405 of FRM handbook (5th), where initial capital is $100, and long $100 worth of stock as well as short $100 worth of stock, can I interpret the scenario as follows? 1) the entire...

Dear David, During revision of 'Equity Long/short strategy', I came across the term "hug a benchmark" that I don't really understand. Can you kindly explain this? thank you! Cheers Liming 09/10/09

Dear David, I'm struggling :-/ between the concept of positive autocorrelation and hedge fund liquidity. Appreciate that you can give some helping hand on it. 1) I understand that a positive autocorrelation, which is characterized by a positive and significant beta...

Dear David, I have following areas within the topic of Capital Structure Arbitrage that I need clarification on. Appreciate your kind help on it. 1) Can I sum up the various forms of Capital Structure Arbitrage strategy into a few words like "Spread Arbitrage"...

Dear David, In a practice question on information ratio from page http://forum.bionicturtle.com/viewthread/1237/ you s,aid that: 36d. Assume instead the benchmark is a style-based index with beta of 1.5. What is the revised Jensen’s alpha and information ratio? Alpha = 14%...

Dear David, I would appreciate it if you can help me out with the following topic although I'm not sure if it is relevant to FRM exam. Philippe Jorion mentioned on page 288 of chapter 11 Var Mapping in his book "Value at Risk - The new Benchmark for Managing...

Dear David, I was reading http://www.bionicturtle.com/learn/article/value_at_risk_var_2007_frm_part_6_structured_monte_carlo/: The worst-case scenario (WCS) helps "plug the hole" in VaR; i.e., that VaR does not say anything about the loss distribution in excess of VaR. (Note...