Errors Found in 2023 Study Materials P2.T5 Market Risk

[Nicole Seaman]

Please use this thread to let us know about any errors, missing/broken links, etc., that you find in the 2023 materials in P2.T5. Market Risk. This will keep our forum much more organized. We appreciate your cooperation!

PLEASE NOTE: Our Practice Question sets already have links to their specific forum threads where you can post about any errors that you find. This thread is for any other materials (notes, spreadsheets, videos, etc.) where you might find errors.

Information needed for us to correct errors:

• Reading (author/chapter)
• Page number (let us know if you are referring to the vital source page number or the page number on the study notes)
• Error

 

[agnibose17]

Page 6, example question. The difference between two percentage terms are given as percentage, shouldn't it be given as percentage points?

 

[agnibose17]

Page 12: Why are we using 1.645 as the normal deviate for a 90% CI instead of 1.28?

 

[Nicole Seaman]

Page 6, example question. The difference between two percentage terms are given as percentage, shouldn't it be given as percentage points?

Page 12: Why are we using 1.645 as the normal deviate for a 90% CI instead of 1.28?

@agnibose17 When noting errors, please reference the reading that you are referring to so we can quickly look up the set of notes to review and/or fix them. Please also let us know if you are referring to the actual study note page number or the vital source page number. Now that our materials are in vital source, we won't automatically know which page number you are referring to. Thank you.

 

[agnibose17]

@agnibose17 When noting errors, please reference the reading that you are referring to so we can quickly look up the set of notes to review and/or fix them. Please also let us know if you are referring to the actual study note page number or the vital source page number. Now that our materials are in vital source, we won't automatically know which page number you are referring to. Thank you.

I am referring to the vital source page number i.e. the bookshelf note of market risk. Thank you

 

[David Harper CFA FRM]

Hi @agnibose17

• Re "... shouldn't it be given as percentage points?". I respect that observation
  You are saying that context + the symbol "%" is insufficient to connote percentage points? Can't "%" refer to either. Or, does it really need to say "7.91 p.p." or 7.91% p.p" ? (per https://en.wikipedia.org/wiki/Percentage_point). To be honest, I'm not sure, checking ....
• VaR is always one sided; e.g., the normal 95.0% VaR deviate is 1.645 = NORM.S.INV(95%). The presumption of a confidence interval is two-sided; when I'm feeling accurate (not always), I'll remember to refer to the one-side bound or the one-sided limit, in order to distinguish from an "interval" and its two-sided connotation. Notice also the "q +/-" which symbolically is two-sided. So the 90% (two-sided) confidence interval has 5% in each tail and therefore is q +/- 1.645. For further example, as NORM.S.INV(90%) ~= 1.28, we can see that 1.28 is the normal deviate that matches either the 90% VaR, or the 80% confidence interval (10% on each tail). Thanks!

 

[agnibose17]

Thank you very much for the clarification. I believe pp is more appropriate. But again we are comparing two different measures. So I'm a little confused about how we should put it. But I get the point of the exercise.

 

[Chris]

@Nicole Seaman Vital source page 431 (https://bookshelf.vitalsource.com/reader/books/BTP2T5SNPQ/pageid/431) forum link points toward https://www.bionicturtle.com/forum/threads/p2-t5-305-vasicek-model-for-interest-rates.6710/ which is invalid link. I searched the forum and it seems the correct link is https://forum.bionicturtle.com/threads/p2-t5-305-vasicek-model-for-interest-rates-tuckman.6710/.

 

[Shau_2207]

@David Harper CFA FRM @Nicole Seaman ,

There seems to be an error in node 1,0 and node 1,1 one year forward rate it should be divided by 1.142 and 1.062. But instead it is divided by 1.1 for both.

This is in chapter 8 of tuckman page 41

 

[David Harper CFA FRM]

Hi @Shau_2207 You are correct (apologizes), good catch. The values look correct (i.e., 0.766371 and 0.886233) but as you say they should be discounted by, respectively, 14.2% and 6.2%. Thank you!

 

[Shau_2207]

Hello @David Harper CFA FRM @Nicole Seaman ,

Regarding Chapter 9 page 53 onwards, I noticed we don't have mention of converting the non- recombining tree to recombining tree.

I took GARP notes for reference (attached) which says its out of scope. I just wanted to confirm that if it is part of the syllabus ?

Thanks a lot for looking into this in advance.

 

[Nicole Seaman]

Sent by a forum member via private message:

P2.T5.Tuckman-Ch9-drift-v5
Slide 5
Model 1: Rate Tree

In Model 1, since drift is zero, rate recombines to current rate, r0, at node [2,2]

I assume that should be node [2,1].

 

[PProd3209]

Hi,

P2.T6.CR3R9-Schroeck-v3
Slide 23 Portfolio UL

I believe in the ULP% formula, the second w (omega) should have a subscript j, not i.

 

[gsarm1987]

Page 6, example question. The difference between two percentage terms are given as percentage, shouldn't it be given as percentage points?

its simple difference just to show how Lognormal results different from the normal VAR

Page 12: Why are we using 1.645 as the normal deviate for a 90% CI instead of 1.28?

1.645 for 90% Because its two-tailed. Note from the z-table: two tail's 90 % is 1 tail's 95% which is 1.645 deviate. for two tails 80% its 1 tails 90% which is 1.28 deviate. Edit: i just noticed David had already answered.

 

[dla00]

Hi @David Harper CFA FRM / @Nicole Seaman

Question 23.1.3 - it should read risk-neutral instead of "real-neutral".



Best

 

[David Harper CFA FRM]

Hi @dla00 Yes, definitely agree as "real-neutral" is not a word. It should read "The risk-neutral probabilities ..." as you suggest. Source is here https://forum.bionicturtle.com/threads/p2-t5-23-1-risk-neutral-interest-rate-term-structure.24361/