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From excel: NORM.S.INV(0.999)=3.09,. or you can look up the z-table and see what sits at 0.999 probability, that should be 3.09. It's the area under the standard normal distribution curve to the left of 3.09 is 0.999 or 99.9%.

@yLam4028 the book says if F is high the economy is doing well (aka low PD) then U will tend to be high (pushed way far into the tail corners). See page 75-77 of the GARP book. Re: cupolas, it is where you have 2 distributions, you model their correlation, instead of getting tangled in a huge...

@jlapienis buying assets (aka quantitative easing) from open markets. it increases money supply. Printing also increase money supply, can cause inflation and result in devaluation of currency (too much paper chasing too few goods). Also when we talk of money supply, we cant ignore M1 (narrow...

@Shau_2207 please allow me to answer: P(1,1) = from next two branches (Up & down) Expected value is being discounted by the rate prevalent at the node This is better understood if we use a binomial tree diagram. See page 22, Reading 5 in BT notes. For exam you may be given info such as: The...

@enjofaes Book says ENE = expected negative exposure, notes say NEE (Negative expected exposure) , interestingly Wiley also uses NEE. See page 252 of the book you will see it says "sometimes known as negative expected exposure (NEE) NEE (Negative Expected Exposure) & EE (Expected exposure)...

@yLam4028 if one independent variable, t^2 = F, but when more non zero independent variables then this won't hold. Formula for F-test = Regressed sum of squares / Sum of squared Errors

@enjofaes when doing bilateral valuation of counterparty credit risk. Insertion of DVA will increase the value of the risky position. Also, DVA has funding benefit. by defining defining lets see how we find the relationship: EE and NEE are used to calculate CVA and DVA. CVA is a prediction of...

@enjofaes The example on page 27 in the notes, shows real-world probabilities on the tree (50/50) but if its risk neutral probability, then you may need to calculate the p and q (page 28). Just sharing for info, RN probability = (1 + rf - down)/(up - down). up for higher rate, down for lower...

@YCHEN7458 spot on!

@YCHEN7458 full hedge with futures cut out upside gains and any downside loss. They just lock you to one place. If you are long or short only the future and no asset to hedge then comes the topic of gain/loss on rollover or assigning of the future. Say you buy a future 100$ if spot falls to 90...

@json5137 beta is the regression coefficient of performance of an asset against the border market performance. one way to write it is : Beta = Corr*StdevAssetreturns/StdevMarketreturns. beta is related as sensitivity to market factor. In anycase, the quants reading will help you understand it...

@YCHEN7458 basis risk implies under/over hedging. underhedging exposes us to the uncovered risk and overhedging is inefficient. in context of a short hedge (aka shorting the future), if futures price increases, he is in a loss with respect to that hedge. remember the future has not been assigned...

@JSING5137 you have a stock $100, its beta with a broad market (eg. S&P500) is 0.7, if S&P is down 2% your stock should be down 1.4%. The futures available say SP500 future (futures are standardized by size and may not be a perfect fit) may have beta 1 with that broad market. When it comes to...

@JMars7424 looks correct. annualized, continuously compounded yields are calculated correctly. About steepness, we take the spread between longer and shorter term. Correct

Prep material where ever it may be, is always a supplement to the main meal (GARP). i think BT appears bulkier because of the font size and page layout. If you arrange GARP books in same format, you will realise what i mean. I'd say focus more on practice questions given in vital source and pay...

@Shau_2207 This expression is a result of simplification. Please see David's comment above (april 17 and 18, 2014). In short, equity is a call option on asset. starting point: S(V,F,T,t) = VN(d1) - Pt(T)FN(d2). on page 238/340 of your ebook (BT notes), you will see it is using an analogy that...

@RChow4139 see the diagram at bottom A = 15+1+3+1 =20, B = 15+1+3+1 = 20. Re: 50%. P(A|C) = P(A&C)/P(C) = (3%+1%)/(3%+1%+1%+3%)=50%. P(B|C) = P(B&C)/P(C) = (1%+3%)/(3%+1%+1%+3%) =50%. Hint: pay attention to the rectangles

@Shau_2207 which example?

@mbbx5va2 Unlike options, the Delta of forwards stays constant. forwards and futures have a linear payoff, unlike options. OTM is when you are losing and ITM is when you are gaining as a counterparty. The payoff would be an upward-sloping line if you are long, the left side would be negative...

@GEBEN9829 welcome to the Forum. For info, upward slope implies negative roll, i.e buying longer term futures at higher price and selling shorter term futures at lower price. Under backwardation, it would be a downward slope, that implies a positive roll. Notice, the horizontal axis is time...