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Hello, In the reading it says that the floor price for a convertible bond is always the investment value but that the max depends on whether or not the bond is at maturity. It states that the option price is the max before maturity and the conversion price is the max at maturity. This may be...

Thank you, that makes complete sense except for one thing: the part about the tranche being priced below value if there is significant systemtic risk. If there is significant risk, wouldn't the cat bond be more expensive because the liklihood of a payoff is higher? Thanks! Shannon

THanks for the advice. THis was another line from Schweser. Your system is so much better. Thanks again, Shannon

Thanks! Shannon

Hello, THis may sound like a strange question, but I have a cover sheet for Litterman Ch 17 and all of the questions are the exact same as from the Bodie Chapter. Is there are Litterman set on this site anywhere? Thanks! Shannon

Have not done it yet. Hopefully will do it this weekend. WIll let you know how it goes.

Hello, The chapter says something very strange that seems contradictory to what I have read in other chapters. It says that the RMU should be independent (which makes sense) but then it goes on to say that it should NOT report to senior management. I may be missing something subtle here, but...

Perfect. Thanks! Shannon

Agreed on all counts, I just wanted to make sure that his use of the the .78 correlation was a little too convenient. On one hand, it is a way to set a maximum level of correlation betweent the two traders. I just think it would have been more realistic if ANY other correlation was used and...

Awesome! Thanks! Shannon

I think this is starting to make sense. So SAA is more along the lines of a goal for an information ratio or Shaprpe ratio, TAA is the "asset allocation" (% equities, % fixed income, etc), then we have sectors choices within our TAA and the actual securities chosen are the final step. How is...

What you said makes perfect sense, but what I am saying is that the correlation of 0.78 just happens to make everything work out nicely. It was not taken into account at all when the allocation decision was being made. No matter what the correlation between them was they still would have been...

Thanks. That makes perfect sense, but it still does not get to the heart of exactly how the author is using these terms. Take my second example from above: "Active risk is the amount by which the actual assets could underperform its TAA." How can the actual perfomance of the assets...

Hello, The jargon in the risk budgeting for pension risk section is very strange. The author uses the terms strategic asset allocation and tactical asset allocation in a way that does not match up with any definitions I have seen. From what I understand, SAA is more along the lines of passive...

Hello, There is another example in Jorion where he seems to pull something out of thin air. If you look at the risk budgeting problem on p 444, there is something fishy going on. The particular step I am talking about it where he says the $525 million is split evenly betweent the two...

Sorry, nevermind. I found what I was looking for. Shnnon

That makes perfect sense. Jorion's explanation sounded like he used optimization to come up with the formula instead of using optimization within the formula. Thanks! Shannon

Hello, I was looking at one of the equations in Jorion and it looks there is some circular referencing and I was hoping you could clear it up for me. Equation 17.7 seems is supposed to help determin how much capital to give to different managers. However, at least one of the variables is a...

Hello, In the study notes and the video, you mention that options risk should also be counted in the larket risk charge along with currency, commodities, equities and interest rates. I assume it is in the trading book, but that is never really stated. Also, are there general and specific...

Thanks! Shannon