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Hello, What are the advantages or disadvantages, from a capital requirement perpsective, of being treated as part of the trading book or part of the banking book? In other words, why would we want a position to be treated as one as opposed to the other? Can we hold less capital against...

It is certainly helpful. I have no doubt about your conclusions, but if our p was 90%, the p*(1-p) would be 0.09. If p was .99, then this product would be .0099. An increase in p seems to decrease this amount. Also, Dowd uses this for a VaR confidence interval but uses the area under the...

Hello, One of the aims tells us we need to "determine the amount of data required to estimate percentiles of loss distributions" The one example of this in the notes (and in the source reading) is extrmemly confusing. Is there any way to sum up what they are looking for in a clean formula or...

Hello, I may be interpreting something incorrectly, but in the Cannabaro paper he says that EE(t) curve is the "loan equivalent"exposure curve, but in the Crouhy chapter he says: "the loan equivalent is an estimate of the average positive exposre, over the life of the deal" I read this as...

There is something inconsistent in the way Hull says these two are related. At the beginning of either Ch 22 or 23 he says that as default rate increases, Recovery rates decrease. Then, when talking about pricing CDSs, he says that the PD is appx proportional to 1/(1-RR). This says the...

Hello, I have seen "reserves" listed as Tier 1 capital and tier 2 capital. Tier 1 says "disclosed reserves" while Tier 2 says "undisclosed reserves", so I guess that makes sense. My question is, what distinguishes a "disclosed reserve" from "asset revaluation reserves" and "General provisions...

Nevermind. Thanks! SHannon

That makes perfect sense. Thanks! Shannon

That makes sense, except for the random spread scenario. If the volatility of the spread is, say, 1% per day, wouldn't this imply that over the course of one week the spread volatility would be sqrt(5) * 1% or am I looking at this incorrectly? Thanks! Shannon

Hello, Can LVaR be time scaled? If so, how? It just seems strange because it is dealing with a spread and that the spread really wouldn't change as time goes on. We could obviously scale the "regular" VaR and then add the LC, but If we are given a constant spread would the LC just stay at...

Hello, This may be another silly question, but when we duration map a portfolio of bonds, is this according to the Dmod or Dmac? Thanks! SHannon

Hello, A friend told me that it was stated on here for part 1 that Hull was the primary source for a lot of the questions. Is there any way to know which texts could possibly be the most important for part 2? It just seems like there is SO MUCH detail in some of these chapters that I could...

That makes sense. Thanks! SHannon

Fantastic. I know that this is getting alittle deep into CM, but I figured that I should look at it because it is really the only complete example of credit VaR anywhere in the curriculum. Thanks! Shannon

First of all, thank you for your help and your insights. This has been a really tough process. These are both in the 2012 readings. Allen Ch 4 "Exending the Var Approach..." and Stulz Ch 18 "Crdit risks and credit derivatives". Both of them are in the section that describes CrdeitMetrics...

Hello, As I am going over my notes again I noticed that there are two different ways of getting a value for CVaR from Stulz and from Allen (to be fair, Stulz never uses the term Credit VaR, just says "a typical VaR calculation..."). I just noticed that they are using the EXACT same transition...

Hello, I am sorry to ask another bad question, but I keep reading about the use of specific and incremental risks in capital charges but cannot see exactly where they fit in as far as the standardized approach or IMA is concerned. Do these two charges just get added to the VaR + Stressed VaR...

Perfect. Thanks! Shannon

Hello, I am sorry to have to ask this question, but if the 5 yr PD is NOT a cumulative PD, as you stated above, how would we get the 1 yr PD from this 5 yr PD? Thanks! Shannon

Hello, I believe I understand the main idea behind this: if there is autocorrelation in the returns, this means there is a significant chance that the investment vehicle is in some way illiquid. The other idea (I thought) was that if an asset was illiquid the returns should be higher...