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Unless they've recently changed the syllabus, there's no calculus in the exam so I wouldn't focus on trying to understand the derivations. The concept and application is more important.

Ah I see. I think this is about constructing a realistic scenario. Is it likely that the 5YR rate will increase by 100bps and the surrounding rates stay static? Probably not. I think linear interpolation is probably a misnomer here and rather it should be linear regression. You can estimate how...

Actual portfolio NAV changes are noisy i.e. will contain the effects of trading, inflows, outflows etc. I think what they're getting at is that the backtest should not contain these effects. In addition, usually with VaR you're interested in the current exposure profile of the fund rather than...

I think you might need to elaborate on what you mean by "using linear interpolation to shock neighbouring key rates". It's common to use linear interpolation to derive interest rates from a curve where the timing of the cashflow does not correspond exactly to any point on the curve. Shocking...

The choice between FRM and CFA really depends on what you want to do/are doing currently. As already pointed out, the FRM is much more focused on quantitative methods and risk measurement. The CFA is much more general (and voluminous!), covering a lot of ground in different disciplines. If you...

You'll need to speak to a qualified financial advisor. Since this forum is related to professional financial qualifications and assuming most of it's members are financial professionals it's quite likely they're forbidden from dishing out investment advice. Certainly that's the case in the UK...

YTM is only relevant if you want modified duration, which is an ultra simplistic measure. Price the bond using OIS curve to discount + issuer hazard rate curve.

Duration of the future is not going to be exactly the same as that of the underlying bond. Consider that the long future position is not entitled to any of the bond cash flows between now and the future maturity date whereas the bond holder is. The best way (with all these exercises) is to...

Just my 2 cents: It's important to remember that stock returns are heteroskedastic in general. When the stock price was $70 AAPL was probably seen as riskier bet than now, hence higher volatility and higher VaR. The volatility has likely declined now that the price and stability of the returns...

Log returns only make sense when the underlying asset price can be positive only, as Dowd himself says. This not the case for interest rates.

Not sure about the arithmetic average of the log return, seems like a strange thing to do to me. Are you instead trying to find the geometric average? In your first example this would be: which is what you were expecting. You can follow the same procedure for the interest rates.

You're hedging the interest rate risk but not the credit risk of the corporate bond. In a downturn, credit spreads increase devaluing the corporate bond but leaving the government bond unaffected. You could use CDX/CDS to hedge out some of the credit risk if you so desired.

Variance of a Bernouilli Distribution is given by p(1-p): Quadratic formula gives you p: Plugging in the SD of 0.07 gives p = 0.995 or 0.005

At the most basic level, bond portfolio managers usually have a target portfolio duration to manage their overall rates exposure. This can be a target duration value just for the portfolio but is also commonly measured as "active" duration. i.e. Portfolio Duration - Benchmark Duration. So...

PV01 is just a measure of interest rate exposure and with bond portfolios it's prudent to manage the overall rates exposure to a desirable level. Some bond portfolios want to concentrate purely on credit risk, keeping the rates exposure to a minimum, other may take a view on rates. Either way...

Just to add, the venerable @David Harper CFA FRM makes a very good point about wrong-way risk. When you're taking into account wrong-way risk, the EE at time t is conditional on t being the time of default. Thinking out loud here (happy to be corrected!), if the counter-party is more likely to...

My understanding is that EE is as the name suggests, just the expected exposure amount. The only way this could be influenced by the credit-worthiness of the counter-party is if the PV of the position in question is related to the counter-party's credit rating. e.g. a CDS on the counter-party or...

The relationship between DF and r for non-continuous compounding is: Where n is the compounding and T is in years. E.g. n=2 for semi-annual and r is always reported as annualised. There is a small error in your formula as you have DF^(-nt) instead of DF^(1/nt). Typically DFs are derived...

Not sure you can conclude anything about the linear/non-linear nature of the input data just from the value of the intercept.

Reporting portfolio std. dev. in absolute terms is unusual, definitely. I've never really seen this with any regularity except when reporting Value-At-Risk. Even then I wouldn't say it's the "standard" approach. I'd be interested in hearing the experiences of others as well though.