Errors Found in Study Materials P2.T6. Credit Risk (OLD thread)

[Nicole Seaman]

Please use this thread to let David and I know about any errors, missing/broken links, etc. that you find in the materials that are published in the study planner under P2.T6. Credit 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. The new forum threads are for any other materials (notes, spreadsheets, videos,etc.) where you might find errors.

Information needed for us to correct errors:

• Reading
• Page number
• Error

 

[MBK]

Hi,

Reading: 43 deservigny
Page Number: 8
Line Number: 3
Error: "in Merton N(-DD) = risk-neutral Prob[Insolvency; i.e., Asset expires OTM]."

Should this be "in Merton N(-DD) = actual Prob[Insolvency; i.e., Asset expires OTM]." ?

 

[MBK]

Hi,

Reading: 44
Page Number: 22 (From the slides in the instructional video; there are no study notes)
Error: -MAX(F-S,0)+MAX(MIN(S-F,V),0)

Should this be the following? -MAX(F-S,0)+MAX(MIN(S,V)-F,0)

The correction is from the reading itself. When I use values of F=5, S=8, V=7 I get a value of 3 using the BT slides but 2 using the reading itself.

 

[MBK]

Hi,

Reading: 45
Page Number: 18
Error: Formula for P [ At < D ]

Shouldn't there be a negative sign in front of the ratio that we're applying the standard normal CDF on?

 

[Nicole Seaman]

@David Harper CFA FRM Can you confirm that these three are errors so we can get them fixed? Thanks!

 

[MBK]

Hi,

Following up on the above. Should this be posted somewhere else? I posted this one month ago but have yet to see a confirmation.

There are a few other errors I noted in some other slides but now I'm unsure which forum is the best place to post.

Thanks.

 

[Nicole Seaman]

Hi,

Following up on the above. Should this be posted somewhere else? I posted this one month ago but have yet to see a confirmation.

There are a few other errors I noted in some other slides but now I'm unsure which forum is the best place to post.

Thanks.

Hello @MBK

This is the correct place to post any issues that you have found in the study notes. I know David has been extremely busy answering detailed questions in the forum, preparing new materials and working on many other tasks so he may have missed this post. Please continue to post anything that you feel is an error, and I will fix them as soon as they are reviewed by David.

Thank you,

Nicole

cc: @David Harper CFA FRM

 

[The Great Khan]

The second half of this focus review is not in the study material (unexpected loss/ UL contribution)

https://learn.bionicturtle.com/topic/credit-risk-focus-review-video-2-of-2/

 

[Nicole Seaman]

The second half of this focus review is not in the study material (unexpected loss/ UL contribution)

https://learn.bionicturtle.com/topic/credit-risk-focus-review-video-2-of-2/

Hello @The Great Khan

This is because we were not able to completely update the focus review videos this year so some of the content that was removed from the curriculum may still be included in the videos. We feel that it is better to publish the previous videos rather than to not publish them at all because much of the content is still relevant for this year's exam.

Thank you,

Nicole

 

[olgenue]

Reading: Giacomo De Laurentis, Renato Maino and Luca Molteni - Developing, Validating and Using Internal Ratings.
Page Number: 9
Line Numbers: 12

Beta(i) which is the "ith" loan beta is given as: Beta(i) = [ULC(i)/W(i)]/UL(portfolio)].
where ULC(i) = rho(i,portfolio)*W(i)*UL(portfolio).

Doesn't this just reduce Beta(i) to rho(i, portfolio)? In that case, then Beta(i) can never be larger than 1.

 

[David Harper CFA FRM]

Hi @olgenue Yes, exactly. I actually did notice this too, along with several other errors in the new Giacomo (e.g., the Merton model is wrong too). We have emailed the authors and the publisher to request/input on an errata, but we have not received any replies. Because it's a new reading, I didn't want to risk making my own edits.

The source is below, hopefully you'll agree our note does match the source. My problem is that the variables are perhaps imprecisely defined, but more challenging really is the lack of an example!? When there's an example, you can really figure out where is the problem.

But here is what I think he means (notice I am using $ because I think their error is confusing % for $):

• Risk Contribution(i, $) = ρ(i; portfolio)* UL(position, $), because then
• β(i,P) = [Risk Contribution(i, $)/w(i)]/UL(portfolio, $) = [ρ(i; portfolio)* UL(position, $)/w(i)]/UL(portfolio, $) = ρ(i; portfolio)*UL(position,$)/[w(i)*UL(portfolio, $)]
• put another way RC(i, $) = ρ(i; portfolio)*σ(i) such that β(i,P) = RC(i, $)/[σ(P,$)*w(i)] = [RC(i, $)/w(i)]/σ(P,$). So I think because they didn't do an example, they are imprecise with respect to ULC(i) and maybe even confusing % with $ with unitless quantities (beta and correlation).

I hope that's helpful, good catch on your part, although I am going to leave our note where it is for the moment. Thanks!

 

[Member 41305]

Morning David,

You recently updated the study notes for Gregory. I suspect you might have uploaded the old notes instead of the new ones because the section on Chapter 7 (Central Counterparites) is missing, but it is mentioned on the overview on the webpage from where you download the PDF - it's also included in the practice questions......am I missing something?

Best

Rob

 

[Nicole Seaman]

Morning David,

You recently updated the study notes for Gregory. I suspect you might have uploaded the old notes instead of the new ones because the section on Chapter 7 (Central Counterparites) is missing, but it is mentioned on the overview on the webpage from where you download the PDF - it's also included in the practice questions......am I missing something?

Best

Rob

Hello @RobKing

Please see our updated materials list here in the forum: https://forum.bionicturtle.com/threads/2017-part-2-new-and-updated-published-materials.10050/. The updated Gregory notes have not yet been published in the Study Planner. If it is showing a "New" symbol in the study planner, it may be because we updated a small error in the document or we updated the actual webpage that it is published on. When a new or updated set of notes is published, I always make sure to update the published materials thread as a reference for this reason. Sorry for any confusion.

Thank you,

Nicole

 

[bpdulog]

There is an error on securitization example in the Topic 6 review video:



It is actually question 9 from that practice test and the answer is A. I am in agreement with GARP

 

[David Harper CFA FRM]

@bpdulog ours asks about the junior position and GARPs asks about the senior position. They both look correct to me

 

[bpdulog]

Ah yes I see that now. Thanks !

 

[Roberto Hernández]

Hi Team,

Hope you're doing well. Found one error on the CVA formula when aggregating for n counterparties in R46.P2.T6, page 12. The formula given is missing the summation of the LGD components.



Thanks,
-Roberto

 

[RaDi7]

Hi David and Nicole,
I noticed a small deviation in the formula of the continuous annualized default rate in Reading De Laurentis, Chapter 3 "Ratings Assignment Methodologies" on page 15 from the same formula in the official reading:

A minus is missing.
Thank you and best regards!

 

[RaDi7]

Hi David and Nicole,
here one more typo in the same reading De Laurentis, Chapter 3 "Ratings Assignment Methodologies" on page 21:

The cumulated normal disribution operator N is missing.

Thank you and kind regards!

 

[David Harper CFA FRM]

@RaDi7 Yes agreed on both, thank you! The source PD is mistaken (doesn't distribute the T) but ours then omits the N(.) Sorry, thank you!
@Nicole Seaman RaDi7 is correct about both of these mistakes. This doesn't require Deeepa, I can correct myself (added to wrike)