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Dear David, For modified duration = duration/(1+yield) , does it also apply to non-annually paying bond as well? Or should I use modified duration = duration/(1+yield/k) where k is the number of coupon payment per year? Thanks Liming 16/11/09

Dear David, May I also check with you concerning your answer to the added question 26f (see below)? Does a position "long a credit default swap + short a risk-free asset" equal to "short a bond", which is exactly the kind of position the bank in the question wants to establish so...

Err.. Now I think I may be wrong.. as the receipt from Total return swap floating leg should be accrued over the whole year, thus the LIBOR rate should be the rate set at the beginning of the year. Is this correct? Thanks Liming 16/11/09

Dear David, Can I check with you if the following practice question answer is wrong? Question 26: A bank holds USD 60 million worth of 10-year 6.5% annual coupon bonds. Assume LIBOR is flat (i.e., same for all maturities) at 6.25%. (Note: annual coupons implies annual...

Dear David, I'd like to clarify with you if the stock process is both a generalized Wiener Process and a geometric Brownian motion? And how do we call the discrete version of Brownian motion, arithmetic Brownian motion? Thank you! Liming 16/11/09

Dear David, I think the answer to Jack's question should be D, not be B. A buy limit order can only be executed at the limit price or lower, and a sell limit order can only be executed at the limit price or higher. Firstly, the expression of B is ambiguous: I'm not sure if the...

Dear David, I’ve had some confusion, misunderstanding and doubts when doing 09 Level II Annotated Power Practice. Appreciate your kind help on this! In the answer to question 46c (see below), can I use long a call if not using long a put as long a call is also benefiting from...

Dear David, I’ve had some confusion, misunderstanding and doubts when doing 09 Level II Annotated Power Practice. Appreciate your kind help on this! In your calculation of Expected Shortfall (ES) at 95% confidence level from question 40f (see below), you seem to have divided...

Dear David, I’ve had some confusion, misunderstanding and doubts when doing 09 Level II Annotated Power Practice. Appreciate your kind help on this! In question 23, you answered that the following statement is true: III. Firms whose capital exceeds their required regulatory...

Dear David, I’ve had some confusion, misunderstanding and doubts when doing 09 Level II Annotated Power Practice. Appreciate your kind help on this! In your answer to the added question 2.12a under question 12, you answered that the market (interest rate) risk is not hedged...

Dear David, I’ve had some confusion, misunderstanding and doubts when doing 09 Level II Annotated Power Practice. Appreciate your kind help on this! In your answer to the added question 10d under question 10, you mentioned that tactics to transfer credit risks include: long a...

Dear David, I’ve had some confusion, misunderstanding and doubts when doing 09 Level II Annotated Power Practice. Appreciate your kind help on this! In question 2 from 09 Level II Annotated Power Practice, you seem to have made a mistake in writing the question 2b. I think the...

Dear David, I’ve had some confusion, misunderstanding and doubts when doing 09 Level I Annotated Boot Camp. Appreciate your kind help on this! In sub question 8e under question 8 (see below), the P&L impacts are ranked for a MBS, with the duration approach having the highest...

Dear David, I’ve had some confusion, misunderstanding and doubts when doing 09 Level I Annotated Boot Camp. Appreciate your kind help on this! Autocorrelation in scaling of Volatility: You mentioned on page 25 question 20 “Level1 Annotated boot camp” that if returns are...

Dear David, I’ve had some confusion, misunderstanding and doubts when doing 09 Level I Annotated Boot Camp. Appreciate your kind help on this! Is information ratio equal to beta of a fund? It seems so from your answer to following practice question from “FRM09 Level1 Annotated...

Dear David, I’ve had some confusion, misunderstanding and doubts when doing 09 Level I Annotated Boot Camp. Appreciate your kind help on this! I’ve noticed an important difference between you and FRM handbook with respect to calculating information ratio: in all your practice...

Dear David, I’ve had some confusion, misunderstanding and doubts when doing 09 Level I Annotated Boot Camp. Appreciate your kind help on this! What are the differences between Stop-loss strategy and dynamic hedging? Aren’t they both referring to a situation in which a trader...

Dear David, I’ve had some confusion, misunderstanding and doubts when doing 09 Level I Annotated Boot Camp. Appreciate your kind help on this! A basic concept to verify: if heavy tail necessarily implies changing volatility and vice versa? Thank you for your...

Dear David, I’ve had some confusion, misunderstanding and doubts when doing 09 Level I Annotated Boot Camp. Appreciate your kind help on this! My questions related to question 3 are(question 3 is appended below): 1) Given an OLS relationship such as A = -1.6% +1.8B, do we...

Dear David, I’ve had some confusion, misunderstanding and doubts when doing 09 Level I Annotated Boot Camp. Appreciate your kind help on this! Flexibility in instruments hedging against future, unanticipated and significant increases in borrowing rates: I’ve thought about...