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Yes, the coupon's semi-annual :> Thanks so much! Really really appreciate your effort.

Ah, yes, it must be a call. You're really great David! Thanks!

Hi David, Got stuck in this problem: A US bank has hedged exposure to euro appreciation with a fixed for fixed currency swap. What is the value of swap to the US bank? - $130M notional value, semi annual payments, 2 years remaining - Interest rates: EU, 2.7%; US 2.5% at all...

Hi David, Thanks so much for your enlightening reply, especially on your concepts on volatility, this was not discussed thoroughly in Hull. I have however encountered another ambiguous problem: 1. A delta-neutral position exhibits a gamma of -3,200. An existing option with a delta equal...

Hi David, Got difficulty analyzing these problems: If risk is defined as a potential for unexpected loss, which factors contribute to the risk of a (1) long put option position: (2) short call position: (3) long at the money straddle: a. delta, vega, rho b. vega, rho c. delta...

Hi David, In the EVT distribution of market risk, fat tails are referred to as the "frechet" (shape of the distribution). However, in the LDA distribution, fat tails are referred to as the "Weibull" (which has "thin tails" shape from our quanti readings). Both are referring to extreme...

Hi David, I have a few questions on the FRM Handbook practice questions: 1. A question on Chapter 9 (page 233): The spot price of the corn on April 10 is 207 cents/bushels. The futures price of the September contract is 241.5 cents/bushels. If hedgers are net short, which of the...

Hi David, Jorion and Hull have different formula for computing d1. The Handbook uses ln (S/Ke-rt) while Hull has ln (S/K) --face value of K. Likewise, Jorion uses sigma while Hull uses sigma squared in the numerator. Are they the same? Thanks!

Hi David, I read from the FRM handbook, page 128 that "A long position in an asset is equivalent to a long position in a European call with a short position in an otherwise identical put, combined with a risk-free position." I understand that the combination of a long call and a short put on...

Hi David, Regarding the convexity adjustment where per Tuckman, we drop 2 in the denominator and include 1/2 in the adjustment, and the other one where we have 2 in the denominator and drop 1/2 in the adjustment, if the problem is silent, like, it gives the values of duration and convexity...

Thanks!

Hi David, According to your post entitled Securitization in Basel II, "if an asset is securitized through a so-called "true sale", the securitized exposure is recast from a single risk-weighted exposure into a set of "blended" risk weights that reflects the sub-divided risks that accompany...

Hi David, No need to answer this question (sorry for rocking your boat). I already got the answer from your blog entitled "IRB credit risk function explained." Very nice explanation, I got difficulty in understanding the Basel reading on IRB function, but your blog clearly explains it all...

Just a follow-through, what is the Basel's rationale for giving higher maturity adjustments to assets with lower pd (higher quality exposures)? Thanks!

Hi David, In the formula K = LGD X f(PD) X f(M,b) You mentioned in your Basel Primer that the small b in the maturity adjustment f(M,b) incorporates both maturity and probability of default. Does it mean that, aside from the impact on asset's PD as incorporated in the f(PD), there is also...

Hi David, According to the Basel readings, Tier 3 capital is used to meet market risk capital requirements only. How then we compute for capital adequacy ratio with the inclusion of Tier 3 capital? If we are asked, what is the total capital per Basel II, do we automatically include Tier 3...

Thanks so much!

Hi David, Thanks for the prompt reply and thanks so much for all the efforts. Even if this is just a distant learning, I really really felt your utmost sincerity in helping us pass this difficult exam. I am simultaneously attending a formal FRM review (company sponsored), but to be honest...

apologies, it's leveraging through derivatives and not from derivatives. Thanks David.

Hi David, According to the Stulz readings, in order to maximize value creation, we have to determine the optimal level of firm’s debt to equity ratio, so as to benefit optimally from leverage (through tax shields) at the “optimal” level of financial distress cost (such that the benefit of tax...