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You've provided the details of the solution here: http://www.editgrid.com/bt/frm_2008/quant1_16 I am confused about something...Using the terms in this problem -- E(x) = x1*f(x1) + x2*f(x2)..... = sigma(x(i) * f(xi)) This should give you 40b....But you seem to calculate: E(x) as...

Us FRM candidates might appreciate hearing from one of our authors about the current mess... "For Wall St, Greed wasn't good enough." http://www.nytimes.com/2008/09/18/opinion/18wilmott.html?ref=opinion

Thank you David. I understood what you are saying....The not guilty and innocent is an apt analog.. The question was apparently from FRM 2006. Since the time I posed the question, I've now read somewhere that the null hypothesis must always include the "=" sign -- as in: H0: mu = 0 or H0...

I came across an old FRM exam question: "Suppose the std dev of a normal population is known to be 10 and the mean is hypothesized to be 8. Suppose a sample size of 8 is considered. What is the range of sample means that allow the hypothesis to be accepted at a level of significance of 0.05?"...

David, I've a somewhat related question -- I too was wondering about "Harper's take" on this mess -- not just Lehman and Merrill, but also Fannie and Freddie and possibly more to come:L 1. Is this a failure of risk management per se -- or is it the failure of the decision makers ignoring...

Nice explanation David....Everytime, I read a response like this, I feel so lucky to have "stumbled" onto your site lo those many months back....

In many readings across multiple readings, I've come across the term "agency costs" pertaining to risk management. Can you illuminate it with a short explanation as to what this is? Who is the agent?

http://www.bionicturtle.com/learn/article/conversion_factor_for_treasury_bond_futures_contract_7_min_screencast/ I tried to leave a comment on the comment section on the above page -- but I couldn't. I tried this on both Internet Explorer and Mozilla -- but there is a field that says: please...

http://www.bionicturtle.com/learn/article/illustration_of_vars_failure_to_meet_coherence/ Someone pointed to a mini-tutorial on subadditivity (above link...) How can I access other such mini-tutorials -- is that thru the Chalk blog? I don't want to miss either such useful mini tutorials or...

I am watching your OpRisk Part B and the section on RAROC and adjusted RAROC. You say that in the first generation RAROC, you compute the RAROC and compare it to a "hurdle rate" and then if the RAROC os greater then you go ahead with some risky project. 1. What is "hurdle rate" and what is it...

From the reading on the various ratios, I see that the "Sortino ratio is a variation of the Sharpe ratios and is useful for a portfolio where the returns are not symmetric..." Several questions: 1. David, what does "symmetric return" mean? 2. I understand that in the Sortino ratio...

I understand correlation -- as in the relative movements between the prices of two assets? What is "auto correlation" or "serial correlation?" Short example? --sridhar

Thanks David...As the resident nitpicker(!), your Edit Grid menus, at least for the spreadsheet you mention in this post -- the menus are all in French. Are you vacationing in Provence:-)

Couple of quick things: 1. On page 15/78 of the investment risk module, you introduce a t-statistic for Jensen's alpha. What is the denominator --- omega(p) -- I don't see this term introduced? 2. Typo: On page 10/78, under the section "Portfolio Performance", you have the sentence...

While sitting through your Credit C part 2 screencast -- I got bit by this wisdom that VaR is not sub-additive while ES is....(I find myself an unwitting victim of having forgotten some concept which I first came across say 6 weeks back...) 1. Can you pithily describe what sub-additive means...

Thanks for the usual clarity David....One lingering thought... <<....but multiple CDS can be written on the mortgage loan....>> I've read through your IBM example...You and I independently sell a CDS on an underlying asset such as IBM...I am trying to relate this in a common-sensical way...

I refer to page 38 of your Credit Risk C screencast -- where you talk about CDO-squared. From the picture, it appears that the same asset can be part of multiple tranches? Is this physically possible? Looked at from the point of view of the tranched investors -- if Asset B is part of a junior...

Thanks David...As always, you deliver....My motivation in asking the question was this: I saw today somewhere a practice question that started off with: "An analyst is examining a total rate of return swap....." with some details.....And then goes on to ask which of the following stmts is...

David, Help me with this confusion. If you treat CDS and TROR as two varieties of swaps -- it is clear to me who the swap buyer and sellers are in a CDS. The swap buyer in a CDS owns the reference asset and transfers the credit risk to the swap seller. In the case of TROR, it seems to...

In an earlier post in this thread, David you say: <....The formula here for PD is N() It is exactly the same as: N(d2) in the Black-Scholes(!) ...>> If I use d1 and d2 to refer to the expressions we countered in the Hull chapter on Mkt Risk, then the PD here is N(-d2) and not N(d2)...