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Hi David, Ref Q: More difficult: Based on the June & Decmber futures prices, what is the implied six-month lease rate for gold, implied by the June and December futures prices (not the lease rate implied by the spot which interestingly is negative!)? When we solve for this question we have...

Hi David, Q1 Put call parity - Practice question (Par 4 difficulty). If the options are instead American-style (paying dividends), when is it optimal to exercise? - Is it same for both put and call options (i.e before stock goes ex dividend). Because after dividend, stock price should go...

Hi David, I was trying to solve this question posted by you on blog sometime back. Q Eurodollar futures convexity adjustment – Practice question (Par 4 difficulty).The four (4) year Eurodollar futures price quote = 95 (pretty near to actual).Volatility of the change in short-term interest...

Thanks David, got it !!

Hi David, I am finding some difficulty in grasping concept of marginal VAR , also not able to link up concept with Beta. I am clear on the concept but not able to derive the formula given for computation of marginal VAR. Is there any link (small tutorial) that I can refer to in order to get...

Hi David, Need your help on this question given below, this is taken from the 2008 practice set. Q Consider an asset worth USD 1 million whose 95th percentile VaR is USD 100,000 (computed using the parametric method assuming the normal distribution). Suppose the bid-ask spread on the...

Hi David, There are two doubts I have from the new credit risk quiz (Round 2) 1) Which most nearly described the usage given default (UGD)? In this I am not able to differentiate between ans A and B, reason being that UGD comes as an option to take more loan... and in stock put and call...

David, this makes sense.. Now I get your point. Thanks once again :-)

Hi David, We said that "zero covariance will mean zero correlation but converse not necessarily true". I am little confused when I look at the formula..because Corr (AB) = Cov (A,B)/ SD A * SD B Now in this if Corr (AB) = 0, it will always lead to zero covariance. I am sure that I am...

David, Many thanks :)

Hi David, Q 15: Which is NOT given as a factor to explain why rating changes impact stock prices? This is from credit round 1 - Guess it should be impact on bond prices.. as I could not understand from the answers how is it impact on the stock prices. Pls suggest. Rgrds OM

Hi David /Johannes, Thanks for pointing that out, I agree that was the calculation error ... OM

Thanks David, even my learning going through this question is that better not to think too much some times.. :)

Hi David, I have taken this Q from the practice set 2007... A company has been offered a USD 5 million term loan to be fully repaid only at maturity 2 years later. The bank estimates that it will recover only 55% of its exposure if the borrower defaults and that the likelihood of that...

Thanx David for the explanation and correction in the derivation of the beta, in a way now I can link the concept with the min variance hedge ratio as well... :)

Hi David, Given the formula of beta (slide 16), I was thinking hard that can beta be negative and if yes then what will be the impact on the expected return? Considering the formula = Beta = Cov (m,i)/var m, if we use the formula for correlation then this will become Beta =...

Hi David, Request for some more clarity on this concept. To draw out the context, my understanding is that we can use IRR for "capital allocation" decisions, as (IRR > hurdle rate), NPV will be positive and so we will be adding value the shareholders. Here in this case, I am presuming...

David, Understand your point,and for now will keep this in mind at least for the exam purposes! Also, am able to see the explains :) Thanx for your prompt response, OM

Dear David, In question 1)....Respectively, which is preferred or implied if the operational risk problem is (i) to measure economic capital..as I understood from the readings that basically BU approach requires more detailed understanding. For this reason, I thought that economic capital...

Hi David, Please can you mention, what does K stand for in the macaulay formula = [1*PVCF1 + 2*PVCF2 ... n*PVCFn]/ K*price. This is as given in the episode 5 in the Market risk B part 2. Other thing, when I think of relation of maturity with Yield, i know for a long maturity tenure...