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Hi David, Thanks for replying ; I have attached an excel sheet of the concept /steps I proposed on the computation method; There is no link or thread It is my own thought process and discussion with my colleagues; I tried to explain the same with a simple example; kindly have a look at the...

Hi David, This question is on methodology of quantification of business risk VaR; what I could gather from various sources is as follows: 1.First the volatility of the time series data of actual and planned as a ratio should be found out both for the income as well as the cost. The income...

Hi, For example, in case of methodology adopted by Moody's in 'Independent Exploration and Production Industries' ,one of the several factors is 'Reserve and Production Characteristics' which is given a weight of 40% .My question is, is it based on some study or it is judgemental? Second...

Hi David, Rating agencies assigns weights to different rating factors that are considered for ratings. My question is on what basis they assigns weights to different rating factors? Can you please throw light on the same? Regards,

Hi David, 1. What is the difference between 'Expected Tail Loss' and 'Stressed VaR'? 2. In case of private equities where we don't get quoted market values if we adopt an approach of simulating estimated cashflows and then finding out present value of the same for each simulated path then...

Hi David, I am looking for a bit detailed on the methodology and implementation (excel spread sheet) on the stress testing methodology adopted by Federal Reserve. Meanwhile there is a paper in the IMF website also dated back in 2007 'Introduction to Applied Stress Testing' by Martin Cihak. IMF...

Hi David, can you please elaborate on how to quantify specific risk within trading book? Regards, Angshuman

Hi David, can we have an excel spread sheet containing in-depth example how to implement Earning At Risk and Cash flow at Risk? Or if you please suggest a book which we can read to implement the same. Regards, Angshuman

Hi David, suppose a company wants to judge the hedge effectiveness (by linear regression) of an Interest Rtae SWAP Transaction , where the company wants to assess whether a pay fixed/receive 3- Month Libor interest rate swap could be used to hedge a variable interest expense associated with a...

Hi David, can you please tell how to compute duration of an Interest Rate Swap? The problem is that the cash flow of the floating leg, if we consider up to first reset date, is too small compared to the fixed leg. Does the 'Duration' of an IRS has got any practical application/significance or...

Hi David, sorry if I am troubling you. Appreciate, if you kindly reply to the thread.

Hi David, thanks a lot for your guidance, I used the same formula (TINV)for generating the VaR no and as expected ,the resultant VaR i smuch higher. so I have replaced the following equation, S(t) = S(t-1)+S(t-1)*[mu*dt+normsinv(rand())]*sigma*dt^0.5...................(I) with S(t) =...

Hi David, Thanks for your reply for the MCS. Requesting you to clarify the following doubts: 1. Another doubt for the ‘Structured Monte Carlo VaR ’ is that it uses correlation matrix which is derived from the historically observed returns. So even in Monte Carlo Simulation, historically...

Hi David, post your advice for the MCS, in the worksheet provided by you for 'Structured Monte Carlo' for portfolio VaR computation I used TINV(RAND(),6) instead of NORMSINV(RAND()) is this the correct way to get rid of normality assumption? But when I used TINV(RAND(),6), most of the random...

Hi David, thanks a lot for clarification, another doubt for the 'Structured Monte Carlo VaR ' is that it uses correlation matrix which is derived from the historically observed returns. So even in Monte Carlo Simulation, historically observed events have critical influence. Hence events, which...

Hi David, Monte Carlo Simulation is a flexible algorithm and it is not burdened by normal distribution assumption. But when we are generating the shocks from the seed value we are using equation (NORMSINV(RAND())*volatility*SQRT(time); my question is why then we are again drawing the normally...

Hi David, can you provide any guidance how to forecast foreign exchange rates? for example I want to forecast USD/GBP cross currency rate? What kind of distribution does it follow and what is the industry practiced model adopted to forecast the same? Can you please provide an excel sheet for...