Blog Week in risk (ending Nov 13th)

David Harper CFA FRM · Nov 14, 2016

P1.T1. Foundations

If the expected return is given by R(i)=Rf+β(i,M)*E[M]+E[e(i)], what is the expected volatility of the return? https://forum.bionicturtle.com/threads/p1-t1-611-arbitrage-pricing-theory-apt-topic-review.9811/
Does the information ratio actually generalize the Sharpe ratio? https://forum.bionicturtle.com/thre...rmance-measures-topic-review.9796/#post-46083
In general, we multiply a monthly information ratio (IR) by sqrt(12) to annualize it because 12/sqrt(12) equals sqrt(12) https://forum.bionicturtle.com/threads/p1-t1-411-risk-adjusted-performance-measures-rapm.7919/
Effect of confidence increase on value at risk (VaR) and expected shortfall (ES) illustrated by Dr. Jayanthi https://forum.bionicturtle.com/threads/p1-t1-603-market-risk-topic-review.9700/#post-46207

P1.T2. Quantitative methods

Why doesn’t the simple optimal hedge ratio, ρ*σ(a)/σ(b), necessarily equal the minimum portfolio variance given by σ(b)^2-ρ*σ(a)*σ(b)/[σ(a)^2+σ(b)^2-2*ρ*σ(a)*σ(b)]? https://forum.bionicturtle.com/threads/p1-t2-305-minimum-variance-hedge-miller.6800/#post-45998

P1.T3. Financial markets and products (FMP)

P1.T4. Valuation and Risk Models

Backtest of VaR exceptions with specified binomial model https://forum.bionicturtle.com/threads/var-exceedances-garp10-p1-39.9974/
Is DV01 increasing or decreasing with coupon rate? https://forum.bionicturtle.com/threads/doubts-with-dv01-garp09.9981/
How does the dividend yield impact a binomial tree? https://forum.bionicturtle.com/threads/p1-t4-2-binomial-option-pricing-with-volatility.4756/ Short answer: no change to node values, but instead an increase in dividend yield lowers the probability of an up jump (p) which lowers the option price
What happens to 99.0% expected shortfall (ES) if we increase the window from 500 days to 550 days? https://forum.bionicturtle.com/threads/p1-t4-30-expected-shortfall-es.5700/#post-46230

P2.T5. Market risk

P2.T6. Credit risk

What is the natural shape of the spread curve for a firm with a stable, low default probability outlook? https://forum.bionicturtle.com/thre...read-curves-malz-section-7-3.6944/#post-46089
In the Merton model for credit risk, is the strike price the par value of debt or par plus the final coupon? https://forum.bionicturtle.com/threads/merton-formula.5517/#post-46112
In the Merton model, the risk free rate impacts the first component (the firm’s equity value is an increasing function of the rate) but does not directly impact the second component (default probability is a function of the expected asset return) https://forum.bionicturtle.com/thre...ased-default-probabilities-topic-review.6295/
Who is long (versus short) the CDS; and what is the hedging credit spread trade? https://forum.bionicturtle.com/threads/cds-and-cds-index-long-or-short.7816/
What is the meaning of “error rate” in a credit risk model? https://forum.bionicturtle.com/threads/p2-t6-604-retail-credit-scoring-models-crouhy.9248/ Actually, preferred are accuracy, sensitivity and specificity
What is (k) is Malz’s single-factor credit risk model? https://forum.bionicturtle.com/threads/p2-t6-304-single-factor-credit-risk-model.6806

P2.T7. Operational risk

P2.T8. Investment risk

GARP’s Practice Exam Questions: Part 1

GARP’s Practice Exam Questions: Part 2