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@de & JK, The way i'd go about the variance thing is try to find E(St^2) from the characteristic function of LN distro. http://en.wikipedia.org/wiki/Log-normal_distribution Though, it might just be easier to memorize the E(St^2) Other Qs: Qn. A firm wants to transform current...

Guys, so helpful info..... I'll write FRM this Nov2011 and I thought I should start preparing early.... The friend of mine who wrote the exam yesterday gave me the following questions to cross check... I think it might help other BT members get a feel of the exam... Q1. See Jiew Kwang's post...

A friend of mine took the exam from India... He also said the same thing... He got 3/4 questions which had no choices to match with (the choices were wrong) He also studied the maths part only and he was saying that there were many theory questions from ERM, Op risk and stress testing...

Saray, Just to second what David said, you consider exponential if you need to MEASURE (not technically) TIME till an event ... you use Poisson to measure the number of events in a given time ......... In exponential you measure TIME... in Poisson you measure the number of events... In...

Thanks David, Grt explanation.... I wont say I have completely gripped the topic, but I'm much more comfortable now... Alan

David, I have two questions on this topic. It always haunts me. 1) Suppose the future quote is 90 for delivery in 60 days. What does it mean? Does it mean that the expected forward LIBOR rate for 60-150 day period is 10% (quart. compounding, actual/360)? Suppose after 60 days the quote of...

Thanks David for the explanation. I'm also not comortable with these two chapters :) Just one thing. The cost of transfering the risk is E(St)-F0 = 500-478.1 and not 478.1-455.4 (I think that's what you meant in your post above) Thanks a lot. Alan

David, I'm having trouble with the following problems from Stulz. Q6. A firm has an expected cash flow of $500 million in one year. Beta is 0.8.Rf=5% and Risk premium on thew market if 6%. What is the PV of the cash flow? If beta doubles what happens to the cash floow. Q7. Using the data...

David, Help required !! 119.2 Assume today’s stock price S(0) is $100, the daily log (continuously compounded) return has mean of 0.0 and standard deviation of 0.10 (10%), and tomorrow’s stock price is lognormally distributed. What is the approximate probability that tomorrow’s stock price...

Dear David & Fellow members,, I am not being able to access any exercises to practice from Stock and Tuckman (reason being I do not have the books). Can you please guide me to some resource since these chapters carry a lot of wight (I guess). Regards, Alan

Kindly see the below question: ABC in entered a forwad rate agreement ro recieve a rate of 3.75% with continuous compounding on a principal of 1million between the end of year 1 and 2. the zero rate are 3.25% and 3.50% for one and two years. What is the value of the FRA when the deal is just...

Dear Saray, Thanks for posting this question. While trying to figure out the solution, I learnt a lot. delta is N(d1)-1 which is approximately -0.5 for at the money close to maturity put. So, the option position makes a loss if the stock price rises. The $5,200 you have got is the delta...

Thanks David ! I visited the Review links before as well but every time I missed to loacte the attachments since I was only going through the body of the posts. For other fellow members like me who missed to loacte the files: It's on the right side of the page (one .pdf file and one .wmv...

Dear Admins, Please suggest how I can view the recorded webinars, if they are already uploaded. In case they are not, are you going to upload them? @Fellow Members, Please share the link if you know the location of the recorded webinars. Regards, Alan

Thanks for the clarification Sundeep ! So, what you mean is we should price an American call on a non-dividend paying stock in the same way we price the European call, that is to say, we should not look at the intrinsic value. Regards Alan

Dear David & Fellow Members, John Hull (in Chapter 9 and 10 - Options, futures and other derivatives) says that the price of an American and European call on a non dividend paying stock should be equal (since early exercise is not optimal). However, when we price using the binomial model, it...