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Hi all, In Ch2 notes p. 4 it states "There is a classic trade-off between economics (aka, cash flow) and accounting: to reduce cash flow volatility might increase earnings (accounting volatility)!" I am a bit puzzled on the trade-off between CF volatility and accounting volatility. I am...

Thanks for the response!

Hi all, 1. Do Asset-Backed CLN transfer interest rate risk (market risk) as well as credit risk since investors are exposed to capital gain/loss on the credit portfolio? 2. Also would it be fair to say that the investor (credit risk buyer) is exposed to the capital gain/loss on the underlying...

Thanks for the detailed response David!

Hi all, I noticed that after skipping the optional appendix in Ch1 notes: "Describe elements, or building blocks, of the risk management process and identify problems and challenges that can arise in the risk management process." that I was confused with some of the questions. For instance...

In the chapter 1 notes p. 12 it states "An asset has credit risk when it is in a position with positive replacement value." Could anybody explain the relationship between credit risk and positive replacement value. My thinking is that an equity share would have positive replacement value, but...

I was wondering whether the weight I highlighted in red should be (1-w)^2 instead of w^2. Would appreciate an explanation!