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Hi @Kaiser , Linearity in regression actually means B0, B2 etc (i.e the parameters) be linear. The variables may or may not be non linear as we can convert them to make a linear equation in variables

Hi Brian, The linearity that you are thing like 3^2 = 9 if 9 is the beta, that way to think is totally incorrect. basically, if u break down the Beta, it is Σ(x- xbar) (y-bar) / Σ(x-xbar)^2 This is in the form of Σ α (y-ybar) where α is just a number, or we can say weights of an observation...

yep, that has to be a typo

Hi Jayanthi, What he did is basically the same thing you did, exp(0.2) is the up move factor and exp(-0.2)is the down move. You must have got this from Hull. However, as David said, it is delta hedge for one step only. If we do this hedging continiously, we will be close to our black scholes...

Just thought I would like to share how you actually loose money regardless of the direction of the underlying when you are short gamma (or convexity) by shorting an option. ∆a be the underlying shares (or bonds whatever) we know convexity as ∆a+ 1/2 Г a^2 Thus, our net position will be ∆a -...

Thanks David, After reading the stuff many times from tuckman i got it. You can explain why did we go for the equations (due to the mismatch of hedges of the 5 year with the 30 year),what are the values actually calculated in the table, why others are 0 values (bonds trading at par of the same...

Hi David, It would have been useful if u would have provided a bit of depth in explaining this topic. I tried reading tuckman too, went over my head.

For derivatives, I dont know why but I found Sundaram, Das book to be more effective and intuitive than John C Hull.

Hi @DebbieM , so how did you manage? (I know from a post that u cleared part 1) Since you are from India, I am even keen to know the same. Thing is, I was doing CA and the current job i do (related to audit) has no role in FRM, i am perplexed at this point.

My bad, so it was options on the bond, i got it

Tuckman says that if we write an option, and the interest rates fall, then there will be loss to the option writer and gain to the option holder. But, rho (greeks) states otherwise, it says that call option holder gains if there is increase in the interest rates. I am confused here?

Hi, I am (hopefully) going to be a cfa l2 candidate. can you guide me what type of firms i may join so that it helps me?

Thanks Nicole! I would like to reedem amazon gift card

Hi all, Pachamanova, BT notes refers to Standard error of sample standard deviation = sigma sqrt(1/2T) Where is this formula coming from? I have no clue. Since ir refers to sample standard deviation, is it refering to sampling distribution of sample standard deviation which we know as chi...

Hi, the first one is where X and Y ar not correlated, i.e x and y are independent variables, however, in 2nd, they are correlated.

Hi @QuantMan2318 , First of all, thanks for taking time here to explain. I was thinking about that risk free portfolio specifically, as if that portfolio would give me value of an option, that means the value of the portfolio must also change w.r.t time ( since theta is change in value of call...

@Gyilmaz @QuantMan2318 ok i just want to know one basic thing, Portfolio of a call will be delta S- PV of K. Now, as time increases, the portfolio value will decrease as PV of K will increase. Thus theta is negative. But a put portfolio will contain (PV of K - Delta S) Over here, PV increases...