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  1. David Harper CFA FRM

    Cost of liquidation formula

    @Varun Momaya If you immediately buy and sell an asset (aka, round trip) your loss the bid-ask spread, by definition. The cost of liquidation, however, assumes that you already own the asset such that your cost is one-half the round trip. Hope that's helpful!
  2. David Harper CFA FRM

    Question about the base / foreign currency

    Hi @chankiki23893 Personally I do not use foreign/domestic semantics because I find them confusing; e.g., your title mention of "base/foreign" is problematic to me. Rather, FX questions are always BASEQUOTE (aka, BASE/QUOTE) such that the first current ticker is the base, so it's always N quote...
  3. David Harper CFA FRM

    Calculating the Premium Payable

    Hi @SPate5068 The key idea to the solution is that the PV(expected premium payments by the insurance customer) = PV(expected payouts by the company). It's the same equality we find in credit defaults swaps (CDS): PV(expected payments) = PV(expected payouts). In addition to discounted each...
  4. David Harper CFA FRM

    Course Course Errors Found in 2024 Study Notes P1.T1. Foundations

    HI @ISiko1513 That's a fair precision TBH. "Market return" might refer to either expected (ex ante) or realized (ex post) and it's my opinion that neither is the default. Hopefully you understand it's an item for improvement ... Thanks for the feedback
  5. David Harper CFA FRM

    Understanding covariance formula

    Hi @BHeng9611 (1) The formula here is (4.0 - 6.75)*(3.0 - 4.00)*30% = 0.8250 which rounds to 0.83. It's contributing to a summation: 0.83 + -0.41 + -0.45 + 0.79 = 0.75 because covariance is the expected cross product. Instead of summing and dividing by (n), we're just multiplying by the...
  6. David Harper CFA FRM

    Course Questions about BT Quizzes & PQs

    HI @AUola2165 @Nicole Seaman do you happen to know the answer to this ... The PQs (including Mock) are always written against the then-prevailing assigned material. If a PQ was written in 2019 but GARP switched authors/assignments, some terminology will "leak". All EPPs have this problem, but...
  7. David Harper CFA FRM

    FRM 1 - Chapter 1 - Book 2 (Quantitative Analysis)

    Hi @TG2323 The FRM exam does like Bayesian problems, although the one you cite is a notch (or two notches) more difficult than you can expect on the exam. The exam has a time limit is one factor. But that question was inspired by previous author Miller, and it was among a set that was closely...
  8. David Harper CFA FRM

    Question on Tracking Error

    HI @gsarm1987 Not overthinking it, to me! I agree 100% with what you wrote, and with your spreadsheet. It really is the difference between an ex post versus ex ante tracking error. In my opinion, TE is truly meant to be an ex post measure. The ex ante version is just if you aren't able to (i.e...
  9. David Harper CFA FRM

    Facing issue with understanding Total return swap

    Hi @BHeng9611 We clearly could have done a better job in that transition (apologies) but it's a common problem with TRS. Here is why: Typically, the "buyer" of the TRS is buying the credit risk which is the same as selling credit protection: they are making the period fixed/floating payments...
  10. David Harper CFA FRM

    N(d1) option delta (Instructional Video: Option Sensitivity Measures: The “Greeks”)

    Hi @AUola2165 As I mentioned, because N(.) is a cumulative standard normal distribution function, both N(d1) and N(d2) are instances of N(Z); i.e., both d1 and d2 are quantiles of a cumulative standard normal. For example, as N(2.33) = 99%, the 2.33 is a Z-value (i.e., a quantile on the standard...
  11. David Harper CFA FRM

    N(d1) option delta (Instructional Video: Option Sensitivity Measures: The “Greeks”)

    Hi @AUola2165 The d1 is effectively a standardized Z such that N(d1) is the CDF for a standard normal distribution. Like the d2 (which has a more intuitive direct interpretation: d2 is the normalized distance-to-strike price or, in the Merton model, distance-to-default). Both d1 and d2 have in...
  12. David Harper CFA FRM

    P1.T4 "Valuation & Risk Model" EOC 13.14

    Hi @AUola2165 I must have replied (effectively) prior to your edit. To respond to The question only specifies to key rates: For the 1.0 year KR: shift from 0 to 1.0 year; then interpolate down to 2.5 because it is the nearest neighbor For the 2.5 year KR: interpolate up from 1.0 because it is...
  13. David Harper CFA FRM

    P1.T4 "Valuation & Risk Model" EOC 13.14

    Hi @AUola2165 It's on the next page. I think it would be better if the solution showed a single graph with two lines, where the span from 1.0 year to 2.5 years ( = 30 months) showed the overlapping lines. But those lines do look correct to me. A way to "check" the solution is to verify that any...
  14. David Harper CFA FRM

    P1.T4. EOC 12.6 and 12.9

    Hi @AUola2165 You aren't confused, you are observant and I agree with you. How GARP can get the first wrong is beyond me. Briefly: The zero duration position implies approximately zero value change for a small parallel shift per the definition of duration. The correct answer to 12.6 is...
  15. David Harper CFA FRM

    P1.T3.21.3. Insurance companies

    @KRatl6896 it's on our task list. It won't be too long, the associated learning XLS will be updated ASAP.
  16. David Harper CFA FRM

    P1.T2.23.6. Logistic regression (2nd set)

    Learning objectives: Explain the role of linear regression and logistic regression in prediction. Understand how to encode categorical variables. Questions: 23.6.1. Darlene is a risk analyst who evaluates the creditworthiness of loan applicants at her financial institution. Her department is...
  17. David Harper CFA FRM

    P1.T4 "Valuation & Risk Model" EOC 10.14.

    Hi @AUola2165 I get their answer, because (1 + z_1.0/2)^2*(1 + f/2) = (1 + z_1.5/2)^3: (1 + f/2) = (1 + z_1.5/2)^3 / (1 + z_1.0/2)^2, f/2 = (1 + z_1.5/2)^3 / (1 + z_1.0/2)^2 - 1, f = [(1 + z_1.5/2)^3 / (1 + z_1.0/2)^2 - 1] * 2; i.e., f = [(1 + 3.80%/2)^3 / (1 + 3.50%/2)^2 - 1] * 2 = 2.20066% *...
  18. David Harper CFA FRM

    Bond prices and forward rate

    @AUola2165 I moved your query to this thread, see above (and my reply) at https://forum.bionicturtle.com/threads/bond-prices-and-forward-rate.23417/post-83349
  19. David Harper CFA FRM

    Chi Square p value

    Hi @JLim3856 In the exam, you will not be required to "calculate" the p-value (beyond scope of a calculator). At most, you may need to interpret it or refer to an obvious p-value per header in a lookup table snippet (the exam provides a Z lookup which--I think you understand--implicitly has...
  20. David Harper CFA FRM

    How to calculate ES (P1.T4.EOC 1.17 and P1.T4.EOC 2.5)

    Hi @AUola2165 GARP is wrong on both 2.4 and 2.5. ES is a conditional average and has only one answer, ever (regardless of continuous or discrete). It has one answer for the same reason that there is always and only one sample mean for any given sample. In the case of 2.5, the 99% ES is the...
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