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Allright, who is up for collecting Q&A for Level 2? I make a start: (X) Liquidity Duration: shares owned / shares traded onaverage = 500,000 / 200,000 = 2.5 (X) Matching given securities with key rate duration exposure table: the 2Y instrument has exposures up to the 2Y KR, the 30Y...

Hi braxxus, many thanks. Good luch everyone. Best Roman

Hi, here is a (shockingly) simple question but for some reason it sticks to my mind that prepayment = paying back the mortgage in full whereas curtailment = oaying back more than the monthly rate indicates but less than the total outstanding balance Can someone quickly clearify...

Hi, The call price doesn't help you in this question for at least 2 reasons. (1) The call price is a value at present, i.e. t=0 but you want to need something in t=T, right? (2) You want to estimate the counterparty exposure and for that purpose you need payouts in t=T, specifically the payout...

Hi David, thanks for the comprehensive answer. Not for the first time... I also prefer de Servigny (mu - 0.5 x sigma²) and will use that. Thanks and regards, Roman

Hi David, I saw your video on the Merton Model where you explain how PD can be derived. A very good one! I have 2 questions relating to that video: (1) Does the same logic carry over to the LGD formula? (I wasn't to transfer) (2) mu - 0.5 x sigma² = drift but what is mu + 0.5 x sigma²...

Hi David, Ok, another way how to trick people :-) At least the monthly payment for the wrong mortgage rate (9.5%) doesn't show up in the asnwers... Thanks. Best Roman

Hello David, That finally helped, I guess! I entirely focussed on the correaltion and forgot about the basic property that you now mentioned ( V(1-st) >= V(25th) regardless of correlation ) ! MANY THANKS ! Reasoning a) cannot be true, see property above b) cannot be true, see property...

Hi, here is a question from 2010 Schweser Practice Exams L2 E2 Q58 which I think could be wrong Question A level-payment, fixed rate mortgage has the following characteristics Term = 30 years Mortage Rate = 9% Servicing Fee = 0.5% Original mortgage loan balance = $150,000 The...

Hi David, Thanks for opening my eyes. I kind of have the feeling that it is starting to make sense. Could you check my revised reasoning below and help me b) if correaltion is negative, please: Question A particular basket credit default swap (CDS) has 100 reference entitites and makes a...

David, There is nothing to add from my side except saying THANK YOU. Best Roman

Hi, another question that left me puzzled due imprecise question format from Schweser's Practice Exam 2010 L2 E1 Q78. Question A particular basket credit default swap (CDS) has 100 reference entitites and makes a payoff when the 25th reference entity defaults. Which of the following...

Hi, i just encountered the following question from 2010 Schweser Practive Exams E1 L2 Q 47 Question Jim Johannsen has collected a large data set of daily market returns for three emerging markets. He is concerned about the non-normal skew in the data and is considering non-parametric...

...yeah. When you think you are suprised, they will suprise you again... Best Roman

Hi David, thanks for the reply and the correction. Your are of course right and so is waqas.munir. Just one minor thing in the reply from waqas.munir: It is the protection seller who would have compensated BP and not the "TR payer would have compensated BP". BP is the TR payer or...

Hi, I was wondering if my intuition/reasoning for this GARP practice exam question is right. Question Which of the following statement about mortgage-backed securities (MBS) is correct? i) The price of a MBS is more sensitive to yield curve twists than zero-coupon bonds ii) When the...

Hi, does everyone agree with waqas.munir's answer? Actually I don't. Here is why: (1) BP is the TR payer: BP pays the TR of the loan which is 9% + value increases or - value decreases. (2) BP will always make payments as long as the loan has not decreased in value by 9% or more. Just to...

Hi, though David might have to add/correct me on this one, the chart simply shows the negative convexity that an MBS bond exhibits due to the prepayment (call) feature. In other words: an MBS is similar to a bond with comparable duration but in addition sells a call option. As interest...

Hi everyone, apart from the question "one- or two-tailed" I was puzzled about the question itself wit respect to the information given. Sepecifically: why is the spread information given in USD-terms and not in %-terms? Best Roman

@ adash: this is much more elegant!