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Hi Sumeetg, Stand error of the slope is given by sqrt[(standard error of the regression^2)/(variance of x)*n-1)] which gives a result of c. you can break this formula down a bit: sqrt[ (residual sum of squares/n-k-1 )^2 / SUM(X(i) - Xbar)^2] standard error of the regression^2 = (residual...

Post hoc ergo propter hoc.

Hello, I don't understand how to calculate the expected shortfall of bond portfolios given their probabilities of default, I'm not following the examples in these cases. I have no problem with the 'historical sim" type of examples like given these worst 15 returns over the past 1,000 days what...

Spreadsheet is great thanks. I'd like to make a suggestion in regards to the Bionic Turtle site redesign. It would be great to subscribe to content (published or planned but unpublished) to get an alert when it is updated / available. For example, if a spreadsheet for the key rate hedging...

Hi David, You have a Youtube video on key rate shift analysis (one of your best ones), would you still have the spreadsheet you used in this ? Or a spreadsheet for the example of this in Tuckman chapter 5 ? I don't see it in the learning spreadsheets. Also, the hedging example for key rates is...

Thanks very much

Hello, I don't understand how an interest rate (ie: spot rate or forward rate) can be a factor that causes a change in the term structure of rates . Is this because we are assuming in a single factor model that if one rate moves, all rates move in parallel ? Also, related, how is the dollar...

Hi David, If I understand correctly, you can allocate X% of any one of the bonds with (1-x) of the 7.35% bond ? ie: You said 2.875% * X + 7.25% *(1 – X) = 6.25% and 4.5%* X + 7.25% *(1 – X) = 6.25%; so then is this valid too: 6.25%*X + 7.25%*X =2.875% ? Cheers

Thanks, makes sense now. I still don't see why the investment bank needs to involve the treasury to strip or reconstitute, as in why the bank can't just do it itself, but that's not really important right now.

Thanks for clearing that up.

Thanks for your reply, that clears a couple things up. From reading that website, this is how I understand the reconstitution on strips, can you verify if I've got it right ? A. Treasury issues fixed coupon bond ie: $100,000 10 year 5% coupon pays semi annually B. Investment bank Foo buys the...

Hello, I'm hoping someone can clear up a couple points abot tstrips for me. a. I thought only investment banks strip treasury bills, bonds not the treasury itself ? this is the impression I got fom a few websites, not to doubt BT or the source reading (which I don't have) b. can someone...

Hello, The notes on the Linda Allen reading (Chapter 3) say the difference between a regular Monte Carlo simulation and a Structured Monte Carlo simulation is the structured one can "generate correlated scenarios based on a statistical distribution" What are correlated scenarios ? Would I be...

Thanks again for the very detailed response, it really makes sense now.

Thanks for the very detailed reply. I think I get it when you put it as "conditional volatility is a volatility (and, really a model of volatility) that deliberately is informed by new information; i.e., "tomorrow's volatility estimate depends on (is conditional on) certain new information." So...

Hello again, I'm having a bit of trouble wrapping my head around the idea of conditional vs unconditional volatility. In one of David's Youtube videos (and from other sources like Jorion) conditional volatility is a volatility estimate conditional on today's volatility and can change day over...

Thanks for your reply, can you clarify what you mean by "assign weights to these returns based on volatility of returns(estimate from GARCH or other technique)" ? By new volatility, do you mean the volatility estimate from something like GARCH ?

Very interesting, thanks.

Hello, I really don't understand how Filtered Historic Simulation VaR (FHS) works after reading the PDF and googling for it. A simple explanation would be greatly appreciated.

Hello, In regime switching, are we modeling 2 separate normal conditional distributions ? One for the low volatility period and one for the high volatility period ? If that is the case, how wold you calculate a VaR using 2 distributions ? Would you include both the low and the high volatility ...