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@JMars7424 If the z(4.0) = 5.0% and z(5.0) = 5.30% with annual compound frequency, then f(4.0, 5.0) = 1.053^5/1.050^4 - 1 = 6.509%. Thanks,

Hi @yLam4028 we do not expect individual assets to have 1.0 betas. As the theory here is very well-developed, I want to be careful about terms like "optimal." Here is a long note I wrote on the topic that you may find helpful...

Hi @enjofaes I agree, it's a mistake in the text and it should read .... I'm fond of triangle numbers (see https://forum.bionicturtle.com/threads/potential-error-in-p2-t5-mr-9-3-2-3-kendalls-tau-and-concordant-discordant-pairs.8209/post-33057). If you have N credits, the diagonal separates an...

@PMuir6307 We have many discussions about this under the "delta-normal" tag https://forum.bionicturtle.com/tags/delta-normal/ ; e.g., in particular good is this discussion https://forum.bionicturtle.com/threads/p1-t4-328-delta-gamma-value-at-risk-var-allen.7203/ And I have a video on...

Thank you @enjofaes and @Nicole Seaman FWIW, based on my look, you are correct that two readings have been removed. Specifically, the prior LOS guide contains the following four readings at the end of ORR, but two are duplicates. Notice their numbering scheme was whacked at the end...

what's your answer?! :)

Hi @PMuir6307 "Effective" implies you want to select a yield shock and re-price the bond. Here are my videos on each: https://forum.bionicturtle.com/threads/t4-34-fixed-income-effective-duration.22507/ https://forum.bionicturtle.com/threads/t4-37-fixed-income-effective-convexity.22527/ I don't...

Hi @JLafr0337 Exactly, "Absolute VaR" refers to worst expected loss relative to the initial position and so includes the drift: aVaR = -μ + σ*z. Also, it looks like that exhibit assumes T = 252 trading days. Thanks,

Hi @CanvasEcho In Astras #1, the unconditional P(B) = 12% + 42% = 54.0%; retrieved easily by summing the two joint probabilities in the top row within the 2*2 probability matrix. If we asked the analogous question in Astra #2, the answer is the unconditional P(B) = 15% 30% + 5% = 50%; ie...

Hi @JAbdo9644 Yes, you are correct. In fact, you can see a similar example via a question that I recently wrote here at https://forum.bionicturtle.com/threads/p1-t3-23-1-corporate-bond-issuance.24359/ i.e., The solution is captured in my XLS (file attached). See how I check (reconcile) the...

Hi Jamal, That's actually a great question: exam-wise some never notice the realistic problem is retrieving full/flat settlement price between coupons because the problems tend to query t = 0 pricing. Yes, should absolutely can discount the cash flows per your "irregular" (but totally correct!)...

Hi @JAbdo9644 Can I slightly edit your question to this: I do that to distinguish between "par yield" and "yield to maturity"; aka, "yield". The answer is, No. The 5-year par yield is a function of the zero-rate curve (vector) including all zero rates (including the 5-year zero rate). What's...

HI @Shau_2207 That particular XLS is old (eg., YELLOW inputs may not match) but here it is (or a very close version). It's really based on Hull's excellent, accessible credit derivatives chapter. See attached. Thanks,

HI Antoine (@Tonio57 ) Yes, it's more than possible, it is expected. But I want to be careful about what we are saying. For me, this is true: At least some Part 1 knowledge is assumed (and required) for Part 2. You gave a great example of that: discount factors. You need to know discount...

Hi @HFlei5545 That's really interesting. I will say: from a mathematical perspective, I'm not convinced that the convention for the price/yield curve (i.e., price on Y-axis versus yield on X-axis) is necessarily "more correct" than the alternative. Further, it is my belief that: Price does...

HI @dla00 Yes, that's elegant because you are solving for μ - σ*z(α) = 0; i.e., μ = σ*z(α) --> μ/σ = z(α), or express via COV, 1/z(α) = σ/μ. ... and If we add the time dimension, sqrt(T), it applies at T = 1.0 year. But, to me, that's one of the two pathological conditions: they are also equal...

@yLam4028 yes, exactly, agreed. Thank you!

HI @yLam4028 Say it were unrealistically perfect MA(1) series such that Y(1) = 1.5, Y(2) = 2.0, Y(3) = average(1.5, 2) = 1.75, Y(4) = average(2.0, 1.75) = 1.8750. Then your errors (aka, innovations) are e(2) = Y(2) - Y(1) = +0.50 per your schedule (notice that's the first actual innovation I can...

Hi @yLam4028 If you examine the example at https://forum.bionicturtle.com/threads/stock-watson-chap-7.13787/post-58778 ... It refers to a regression with three independent variables: TestScore = Intercept + PctEL*X1 + Expn*X2 + STR*X3 The unrestricted regression (where q = 3) generates a highly...

@yLam4028 Your question doesn't make a lot of sense to me (and could be time-consuming to decipher) because if your premise is true (i.e., if restriction = # of independent variables) then why are we applying the second formula with "restricted R^2"? I do not want to get us bogged down in this...